PUBLICATIONS OF CALIFORNIA RAILROAD COMMISSION 



REPORT 



ON 



LEADING RAILROAD AND PUBLIC 
SERVICE COMMISSIONS 



MADE TO 



CALIFORNIA RAILROAD COMMISSION 



BY 



MAX THELEN 




SACRAMENTO: 

W. W. SHANNON • SUPERINTENDENT STATE PRINTING 

1911 



REPORT 



ON 



ft 



LEADING RAILROAD AND PUBLIC 
SERVICE COMMISSIONS 



BY 



MAX THELEN 

Attorney for Railroad Commission, State of California 




SACRAMENTO: 
w. w. shannon : : : : superintendent state printing 

1911 






\o 



V 



:»'.1 



SUBJECT INDEX. 






OREGON. Page 

1. Introduction 2 

2. Organization and office system- 2 

3. Physical valuation l 3 

4. Public utilities 4 

5. Rate making 5 

6. Express rates r> 

7. Litigation (5 

8. Grade crossings . 6 

9. Complaints to interstate commerce commission 7 

10. Car for track scale tests 7 

11. Long and short haul clause 7 

12. Co-operation S 

WASHINGTON. 

1. Introduction 9 

2. Organization and office system^ 9 

3. Physical valuation i - 10 

4. Engineering department 11 

5. Court proceedings 12 

6. Service and facilities 13 

7. Public utilities 14 

8. Rate fixing 14 

9. Results obtained by the commission 15 

NEBRASKA. 

1. Introduction 1G 

2. Organization and office systems 16 

3. Stock and bond law 17 

4. Telephone companies 18 

5. Electric street railways IS 

6. Rate litigation 18 

7. Monthly reports from railroads 19 

8. Annual reports 20 

9. Form of accounts ' 20 

10. Physical valuation' 20 

11. Attitude toward physical valuation 22 

12. New procedure on appeal 22 

13. Changes in schedules 23 

MINNESOTA. 

1. Introduction 24 

2. Organization and office systemic 24 

3. Express investigation 2."> 

4. Minnesota rate case 20 

5. Federal courts 27 

6. Changes in rates 28 

7. Grade crossings 28 

8. Physical valuation * 28 

9. Form of accounts 29 

10. Service and facilities 29 

11. Interstate commerce 30 

12. Accident reports 1 30 

13. Litigation 3<i 



IV SUBJECT INDEX. 

WISCONSIN. Page. 

1. Introduction 31 

2. Organization and office systemII 31 

3. Procedure on appeal 33 

4. Rate fixing 33 

5. Stock and bond law 34 

6. Indeterminate permits 35 

7. Use of facilities by other utilities ■— 36 

8. Physical valuation 36 

9. Depreciation account 37 

10. Public convenience and necessity law 37 

11. Rate changes 38 

12. Municipal councils 38 

13. Gas, electric and telephone inspection 38 

14. Rate department 39 



15. Department of statistics and accounts. 



40 



16. Express investigation 41 



17. Writing of opinions. 



41 



18. Cost basis 42 

19. Relation between state university and commission 42 

NEW YORK. 

Second District. 

1. Introduction 43 

2. Organization and office system^ 43 

3. Division of heat, light and power 45 

4. Division of statistics 46 

5. Division of tariffs 46 

6. Division of traffic 47 

7. Division of engineering and inspection 47 

S. DrvisiON of telegraphs and telephones 47 

9. Stocks and bonds 48 

10. Certificate of public convenience and necessity 49 

11. Physical valuation 50 

12. Rate fixing 51 

13. Relation with newspapers 51 

14. Relation between commission and corporations 51 

15. Elimination of grade crossings 52 

16. Discounts and expenses vf 

17. Amortization fund ° 3 

MASSACHUSETTS. 
A. 

Railroad Commission. 

1. Introduction 54 

2. Organization and office system 54 

3. Rate fixing 55 

4. Facilities, equipment, safety devices 56 

5. Powers of board as to charters, finances, and construction 56 

6. Grade crossings 59 

7. Court procedure 59 

8. Annual report 59 

9. Library 60 

10. Inspectors 66 



SUBJECT INDEX. V 

B. 

Gas and Electric Commissioners. Page. 

1. introduction 61 

2. Organization and office system:: 61 

3. Rate fixing 62 

4. Stocks, bonds, consolidation 62 

5. New gas or electric plants i 63 

6. Accounts 63 

7. Litigation 64 

NEW YORK. 

First District. 

1. Introduction 65 

2. Organization and office syi»tem_^ 65 

3. Legal department 67 

4. Stocks and bonds 69 

5. Certificate of public convenience and necessity 71 

6. Approval of franchises 71 

7. Franchise bureau 71 

8. Physical valuation 73 

9. Newspapers 73 

10. Library 73 

11. Accidents 73 

MARYLAND. 

1. Introduction 74 

2. Organization and office systems - 74 

3. Stock and bond issues : 74 

Interstate Commerce Commission. 

1. Note 75 

GEORGIA. 

1. Introduction 76 

2. Organization and office systemJI 76 

3. Legal department 77 

4. Rates 77 

5. Stock and bond issues 7S 

6. Express rates 7S 

7. Public utilities 79 

8. Telephone and telegraph companies 79 

9. Court review and appeal s 79 

10. Railroad maps 79 

11. Passenger train delays 79 

12. General orders, rules and regulations 79 

TEXAS. 

1. Introduction SI 

2. Organization and office system..!^ SI 

3. Railroad rates 81 

4. Emergency rates 82 

5. Express rates S3 

6. Department of statistics and accounts 83 

7. Valuation of railroad properties 84 

8. Stock and bond law 86 

9. Control over corporations 86 

10. Depot complaints 86 

11. Newspapers S7 



VI SUBJECT INDEX. 

OKLAHOMA. Page. 

1. Introduction- . 88 

2. Organization and office system^ 88 

3. Court procedure 89 

4. Litigation 90 

5. Commission's business 93 

6. Auditing department ; '. 94 

7. Engineering department . 95 

8. Telephone department 95 

9. Rate department 96 

10. Corporation clerk department 96 

11. Municipal utilities 96 

12. Gas and electric companies 96 

13. Use of initiative by corporations 96 

RECOMMENDATIONS 97 



REPORT ON LEADING RAILROAD AND PUBLIC 
SERVICE COMMISSIONS 

By Max Thelen. 

To the Honorable the Railroad Commission of the State of California. 

Gentlemen : On June 26, 1911, your Commission adopted a resolu- 
tion directing me to visit the leading railroad and public service com- 
missions of the country and the Interstate Commerce Commission, for 
the purpose of investigating "the powers and workings of said com- 
missions, the steps which they may be taking to secure the physical 
valuations of the properties of the public utilities over which they have 
control, and proceedings in the matter of establishing express and other 
rates and office organization, and the litigation in which they may be 
involved, so that this Commission may be better able to advance and 
safeguard its similar work within the State of California," and to pre- 
sent to your Commission a report in writing of the results of my inves- 
tigation. Acting under these instructions, I left San Francisco on 
July 3, 1911, and visited the railroad or public service commissions of 
Oregon, Washington, Nebraska, Minnesota, Wisconsin, New York, 
Massachusetts, Maryland, Georgia, Texas and Oklahoma, and the Inter- 
state Commerce Commission, returning to my duties here on August 22, 
1911. 

I talked with nearly all the commissioners and department heads for 
the purpose of ascertaining the work being done by each commission 
and its respective departments. I also bore in mind the necessity of 
passing a statute in this State after the adoption of the constitutional 
amendments affecting your Commission, and made inquiries from all 
the commissions concerning the working of their particular statutes and 
the amendments, if any, which have recently been adopted, or which the 
respective commissioners might have to suggest. I present herewith 
my report, by states, in the order in which I visited them. 



REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. 



OREGON. 

" I. 

INTRODUCTION. 

The Railroad Commission of Oregon was created by Act of Feb- 
ruary 18, 1907. The Commission exercises control over all railroad, 
union depot, terminal, car, oil, tank line, sleeping-car, freight, freight 
line and express companies, except street and other railroad companies 
lying entirely within the limits of a city. The act is modeled largely 
on the Wisconsin statute, and follows it as to procedure on appeal 
from the orders of the Commission and control of rates, service, facil- 
ities and equipment. 

Oregon has no stock and bond law and no public convenience and 
necessity or indeterminate permit law. A proposed public utilities 
law, passed by the legislature of 1911, and signed by the Governor, 
was held up by a referendum and will not be voted upon until Novem- 
ber, 1912. 

II. 

ORGANIZATION AND OFFICE SYSTEM. 

1. The Commission. 

The commissioners are Clyde B. Aitchison, Chairman, a lawyer; 
Thomas K. Campbell, a lumberman; Senator Frank J. Miller, a 
foundryman and labor leader. The term of office is four years and 
the salary $4,000.00 per year. Two of the commissioners are elected from 
the two congressional districts of the state and the third at large. The 
statute provides that no commissioner shall pursue any other business 
or vocation. Mr. Aitchison tells me that this provision is observed. 
The statute also provides that each commissioner "shall devote his 
entire time to the duties of his office." Oswald West, the present 
Governor of Oregon, made his record as a member of the Railroad Com- 
mission and was elected while such commissioner. Mr. Aitchison was 
formerly clerk of the Tax Commission, then secretary of the old Board 
of Railroad Commissioners, then appointed by Governor Chamberlain 
in 1907, and then elected by the people, and has been chairman of the 
board since January, 1911. 

2. Employees. 

The Commission employs a secretary at a salary of $2,000.00 per 
year; a rate expert at a salary of $2,000.00 per year; an engineer at 
a salary of $2,000.00 per year; an assistant engineer at a salary of 
$1,500.00 per year, and a stenographer at a salary of $1,200.00 per 



REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. 3 

year. The Commission also at times calls in a consulting engineer, 
particularly for inspection purposes. The consulting engineer is paid 
only for such time as he devotes to the work. Mr. Aitchison showed 
me a quarterly bill for such engineer amounting to $170.00. 

3. Office System. 

The secretary uses a decimal filing system. This system will be 
discussed more in detail in connection with the Public Service Com- 
mission of the Second District of New York. Rates in effect are filed 
in cases with pockets, both numbered. Rates which have been super- 
seded are pasted into scrapbooks about four inches thick with leather 
backs and then stored. Both the effective and the superseded rates 
are indexed by a card system. In the case of commodities, this is a 
triple index, being arranged as to (1) issuing railroad with its filing 
number, (2) Commission's filing number, (3) commodity. 

The library is well kept up and contains an almost complete set of 
state railroad commission reports. It also contains a large number of 
stockholders' reports of the different railroad companies. The Com- 
mission has secured practically a complete set of these reports, in so far 
as the railroads of Oregon are concerned. 

III. 

PHYSICAL VALUATION. 

The Commission is now engaged in ascertaining the value of the rail- 
road properties within the State. No findings have been made as to 
&ny particular railroad, but the work is being carried on as to all of 
them. A formal notice was prepared and addressed to each railroad, 
reciting that pursuant to the provisions of the statute, the Commission 
would, on a day certain, proceed to investigate to ascertain the matters 
specified in the statute ; that the investigation would be continued from 
time to time and from place to place as might be found desirable ; and 
that the railroads would be entitled to appear and be heard and to 
have process to compel the attendance of witnesses. The railroads 
thereupon appeared and all of them, with the exception of the Southern 
Pacific Company, have furnished data concerning both the original 
cost of construction and the present cost of reproduction. A form of 
return, practically identical with that prescribed by the Interstate 
Commerce Commission in its classification of expenditures for road and 
equipment, was prepared by the Commission and sent to each of the 
railroads. The information requested has been furnished on these 
forms by all of the railroads, except the Harriman lines, which used 
slightly different forms. - Upon receipt of the information required, a 
hearing is had. A large portion of the testimony is generally devoted 
to the question as to the relative sum necessary to be paid by the rail- 



4 REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. 

road companies for right of way in excess of its real value. The Oregon 
Commission seems to follow in this respect the Minnesota Commission, 
which established a multiple of three as to country land, and about one 
and twenty-five hundredths as to city terminal property. The results 
of these investigations will be published in the annual report, but not 
in as much detail as the Washington findings, and will be used, but 
only in conjunction with other elements, in fixing rates. 

I examined in detail the work now being done by Engineer W. H. 
Earl of the Commission along these lines. Mr. Earl has examined the 
original records, such as profiles, vouchers, and contracts to be found 
in the railroad offices, and in this way has secured complete data con- 
cerning the original cost of construction of most of these lines. For 
some of the lines, he has worked out in detail the cost of reproduction, 
according to unit prices. He has worked out carefully a series of unit 
prices for the different kinds of material used in railroad construction. 
His results were secured by ascertaining the price actually paid in a 
large number of cases, and striking an average. Chairman Aitchison 
of the Commission considers the work which the Commission has done 
in this matter to be of very considerable merit. Mr. Earl has found 
the quantities as submitted by Mr. Pope of the Harriman lines to be 
generally about correct, but points out the necessity of scrutinizing 
with the greatest of care the last items on the list of expenditures, such 
as freight for men and materials, legal expenses, equipment, interest 
and commissions. These last items alone raised the valuation sub- 
mitted for one of the Harriman lines from about $29,000,000 to about 

$40,000,000. 

IV. 
PUBLIC UTILITIES. 

As already stated, the act of the legislature of 1911, making the 
Railroad Commission the Public Utilities Commission of Oregon and 
raising the salaries of the commissioners from $4,000.00 to $5,000.00 a 
year, has been held up by a referendum. The opposition came from 
citizens of Portland who had prepared an amendment to their city 
charter providing for a City Public Service Commission. After the 
referendum had been invoked, the Portland measure was defeated at 
a city election. The result is that one measure for control has been 
defeated and the other is held up. 

Chairman Aitchison condemns strongly the provisions of Senate 
Constitutional Amendment No. 47 to be voted on in this state on 
October 10, 1911, providing that incorporated cities and towns may 
retain the powers which they now have with respect to public utilities. 
He is strongly of the opinion that all the powers with reference to 
public utilities ought to rest in the state board. 



REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. 5 

V. 

RATE MAKING. 

Chairman Aitchison is of the opinion that the cost of reproduction 
basis for rate fixing purposes is fraught with very serious dangers. 
He feels that rates fixed on that basis are likely to become inordinately 
high, particularly if in ascertaining the cost of reproduction, the right 
of way and terminal grounds of the railway companies are valued as 
of the present time. He thinks that it is not fair to the public to estab- 
lish a rate on the value of real property immensely enhanced by the 
growth of population of adjacent territory. He states that rates based 
on 7 per cent of the cost of reproducing the Pennsylvania railroad 
system to-day would be absolutely prohibitive. He is of the opinion 
that a state commission, in fixing rates, must consider all the other 
matters suggested in the case of Symth vs. Ames, 169 U. S. 464, such 
as the original cost, market value of stocks and bonds, density of traffic, 
density of population, etc. I find that all the western commissions 
are very much exercised over the cost of reproduction as the basis for 
fixing rates, particularly when the cost of reproduction includes the 
unearned increment. This fear has been very much accentuated by the 
decision of Judge Sanborn in the Minnesota rate case, in which case the 
value of the railroads as found by the Master was, according to one of 
the Wisconsin commissioners, at least 50 per cent in excess of the value 
as shown by the evidence. 

VI. 

EXPRESS RATES. 

I went through the Commission's file in case number 121, being an 
investigation instituted February 15, 1910, into the rates of \Vells- 
Fargo & Company on property taking merchandise and general special 
rates or multiples thereof. The Commission made its order July 12, 
1910, reducing somewhat the rates in effect. On rehearing, the Com- 
mission modified its final order by reducing somewhat the reductions 
contemplated. The express company thereupon complied with the 
order. I find that Oregon and Montana are probably the only states in 
which \Vells-Fargo & Company has complied with orders of state com- 
missions reducing express rates. In Iowa, Illinois, Indiana, Missouri 
and Oklahoma, the express companies have secured injunctions against 
the respective commissions. In the last two states, the Commissions 
have been tied up in this way for over two years. 

I read the transcript of the testimony in the Oregon case and looked 
through the exhibits, and have made notes thereon. 



6 REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. 

VII. 

LITIGATION. 

On July 3, 1911, the day before I reached Portland, Judge Bean, 
sitting in the Federal Circuit Court, sustained the demurrer of the 
defendant railway commissioners in the case of Southern Pacific Com- 
pany vs. Campbell, in which case the complainant had secured an injunc- 
tion, restraining the enforcement of an order of the Commission reducing 
class rates in the Willamette Valley. Judge Bean in his opinion points 
out the necessity of showing the specific facts which are relied upon 
to make out a case of confiscation of property. On the question of 
interference with interstate commerce, he reaffirms the decision in the 
case of Oregon Railivay and Navigation Company vs. Campbell, 173 
Fed. 957; 177 Fed. 318; 180 Fed. 253. In this latter case. Judge 
Wolverton reached a decision on the question of interference with 
interstate commerce directly at variance with the decision of Judge 
Sanborn in the Minnesota Rate Case. The Oregon case and the Min- 
nesota case together with the Arkansas case will be heard before the 
Supreme Court of the United States at the October term. 

In the Portland Railway, Light and Power Company case an appeal 
has been taken to the United States Supreme Court from an order of the 
Commission reducing suburban fares out of Portland. In this case 
a state judge granted an injunction which is still in effect. The rail- 
way company is supposed to issue to each passenger a receipt for excess 
fare paid, the receipt to entitle the holder to a refund in case the order 
of the commission is ultimately sustained. Mr. Aitchison is of the 
opinion that in cases in which the Commission's order as to rates is 
enjoined by the corporations, the mere giving of a bond furnishes but 

little relief. 

VIII. 

GRADE CROSSINGS. 

The Oregon Commission has power under section 28 of the statute 
to compel the installation of safety devices at crossings of railroad and 
highways but no power to compel a separation of grades. The commis- 
sion in its report for 1910 points to the great expense which is being 
incurred by most of the eastern states in order to abolish grade cross- 
ings and recommends a statute like that of Washington prohibiting 
the future construction of grade crossings except in cases where upon 
investigation by the railroad commission it has been found practicable 
to establish such a grade crossing. The legislature of 1911 failed to 
pass such a law for the reason that the people of the West do not seem 
as yet to realize the very great importance of the question of the aboli- 
tion of grading crossings. Mr. Aitchison, however, is of the opinion that 
the next legislature will pass the desired statute. 



REPORT ON RxULROAD AND PUBLIC SERVICE COMMISSIONS. 7 

IX. 

COMPLAINTS TO INTERSTATE COMMERCE COMMISSION. 

Section 47 of the Railroad Commission Act makes it the duty of the 
Commission to investigate interstate freight rates affecting Oregon and 
to request of the railroads such changes as the Commission may con- 
sider necessary and thereafter, if the changes are not made, to apply 
by petition to the Interstate Commerce Commission for relief. The 
statute also provides that the railroads must file with the Commission 
all freight tariffs relating to interstate traffic. Mr. Aitchison con- 
siders this matter of complaint before the Interstate Commerce Com- 
mission on the part of the state commission to be of considerable 
importance. His Commission is now taking up with the Interstate Com- 
merce Commission the matter of Interstate wool rates, affecting ship- 
ments from eastern Oregon. The Commission does not take up with 
the Interstate Commerce Commission matters of a merely individual 
or local interest, as is done by the Oklahoma Commission, but confines 
its work along these lines to rates affecting a considerable traffic within 

the state. 

x. 

CAR FOR TRACK SCALE TESTS. 

The matter of the correctness of track scales seems to be of consider- 
able importance in both Oregon and Washington. The legislatures of 
both states in 1911 provided for the joint purchase by the two railway 
commissions of a car for the purpose of testing track scales, and for 
the transportation of such car free by the railroads. 

XI. 
LONG AND SHORT HAUL CLAUSE. 

While there is no long and short haul clause in the Constitution of 
Oregon or in the Eailroad Commission Act, the Supreme Court of 
Oregon has held that the provisions of the statute against undue dis- 
crimination are equivalent to such a clause. The legislature of 1911 
accordingly granted the Commission power to authorize departures 
from this prohibition. 

When application is made for permission to deviate from the long 
and short haul clause, the Commission notifies the municipalities and 
commercial bodies along the line of the railroad in the territory affected. 
In only one case has the Commission granted the desired permission. 



8 REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. 

XII. 
CO-OPERATION. 

Chairman Aitchison suggests that it would be well to form a Pacific 
Coast Railway Commissioners' Association, to consist of the commis- 
sioners of Oregon, Washington, California, and Nevada, and to hold 
frequent conferences concerning matters which are of interest to all 
the Commissions. This suggestion is particularly valuable, in view 
of the fact that in Washington and Nevada the legislatures of 1911 
conferred upon the state railroad commissions the power to regulate 
public utilities, while in Oregon, such statute has been passed and will 
go into effect at least by November of next year. Calif ornia, in enter- 
ing upon her problem of regulating public utilities, can doubtlessly 
secure very material assistance from these other states. All these four 
states are likewise interested in the valuation of the Harriman lines, 
and should, if possible, take concerted action in this matter. 



REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. 



WASHINGTON. 



INTRODUCTION. 

The Public Service Commission of Washington was created by statute 
of 1911 to take the place of the former railroad commission, which was 
established in 1905. The Railroad Commission's powers were enlarged 
so that the present Public Service Commission has jurisdiction over 
railroad, street railroad, steamboat, express, car, sleeping car, freight, 
freight line, gas, electric, telephone, telegrapji, water, wharfinger, and 
warehouse companies, except municipally owned plants. The statute is 
carefully worked out, containing first a general introduction, then pro- 
visions concerning the duties of each separate class of utility subject to 
the control of the Commission, then provisions prescribing the powers 
of the Public Service Commission as to all these companies, then provi- 
sions concerning procedure before the Commission and the courts, and 
finally provisions concerning construction and repeal and a saving 

clause. 

II. 

ORGANIZATION AND OFFICE SYSTEM. 

1. The Commission. 

The commissioners are H. A. Fairchild, chairman, a lawyer of un- 
usual ability; J. C. Lawrence; and Jesse Jones, a labor leader. The 
term of office is six years, with intervals of two years between expira- 
tions, and the salary of the commissioners is $5,000.00 per year. The 
commissioners are appointed by the governor. The statute contains 
a provision to the effect that no commissioner shall engage in any 
occupation or business inconsistent with his duties as commissioner. 
The commissioners all reside in Olympia, the state capital, and the 
Commission is in session practically all the time. To my mind, one of 
the principal reasons for the undoubted efficiency of this Commission 
is the fact that the members, in addition to being well qualified, are 
on the job all the time. The business of the Commission is conducted 
promptly and efficiently. While I was in Olympia, several matters 
came up concerning new rates which the railroads desired to put into 
effect. The chairman of the Commission promptly telephoned to the 
railroad authorities in Seattle, found out exactly what was wanted, and 
settled the matter then and there. 

2. Employees. 

The employees of the Commission are F. M. Larned, secretary, at a 
salary of $3,000.00 per year; O. O. Calderhead, rate expert, at a salary 



10 REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. 

of $3,000.00; Harry L. Gray, engineer, at a salary of $3,000.00; an 
inspector of safety appliances, at a salary of $3,000.00 ; a telephone 
expert, at a salary of $3,000.00 ; an accountant, at a salary of $1,800.00 ; 
and about sixteen other employees, of whom about six are stenographers 
and ten employees of the engineer. 

3. Office System. 

The office is divided into different departments, the secretary being 
at the head of the administrative department, the engineer at the head 
of the engineering department, and the rate expert at the head of the 
rate department. 

III. 

P.HYSICAL VALUATION. 

By far the most important work which has been performed by the 
Washington Commission has been the valuation of the railroads of the 
state. Section 92 of the Act of 1911, being an amendment of a similar 
provision in the earlier statute, provides that it shall be the duty of the 
Commission to ascertain the numerous items specified in the statute 
relating to the value of the railroads of the state and to hold a hearing 
thereafter to ascertain these matters, upon notice to the company, and 
then to make its findings, with the right of review on the part of the 
corporations. I read the entire first volume of the transcript of the 
testimony on the investigation into the value of the Great Northern and 
other railroads. The proceedings were conducted like court proceed- 
ings. Chairman Fairchild presided and ruled on the admissibility of 
evidence. The Commission, through the Assistant Attorney General, 
put Engineer Gillett and the other employees of the engineering depart- 
ment on the stand and through them introduced their tabulations con- 
cerning the cost of construction of the railroads, land values, and so on. 
Rate Expert Calderhead was then put on to testify as to rates, move- 
ment of traffic, cost of operation and similar matters. After the rail- 
roads had presented their case, the findings were prepared. As these 
findings are by far the most complete of their kind in the country, I 
wish to refer here to the nature of the findings in the Northern Pacific 
case. The Commission there made findings on the following facts: 

1. Financial history of the railroad in Washington, with dates of 
construction of the main and all branch lines, and the financial history 
of the subsidiary corporations. 

2. Original cost of main and all branch lines. 

3. Cost of improvements and betterments. 

4. Amount allowable for discount, general expens s and interest 
during construction. 

5. Amount of depreciation of the various structures ( Gillett 's tables) . 

6. Original cost and cost of reproduction of all equipment. 



REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. 11 

7. Cost of reproduction of all rights of way and terminal grounds. 

8. Property owned by railroad, but not used for operation. 

9. Character of country traversed. 

10. Density of population and traffic. 

11. Sources from which capital was derived; total bonded indebted- 
ness; market value of stock and bonds over a period of several years. 

12. Total tonnage of freight carried in Washington for three }^ears, 
with percentage of each commodity, divided as to state and interstate, 
with the average haul of each and the average haul within the state of 
the interstate haul. 

13. Total number of passengers carried in Washington for three 
years, with passenger miles ; average distance, state and interstate ; and 
revenue. 

11. Express, mail, and other transportation revenues. 

15. Operating divisions. 

16. Number of employees and their wages. 

17. Total present cash market value ($110,208,450). 

18. Cost of operation, divided into freight and passenger. 

19. Average cost per ton for moving freight ; cost per ton for moving 
each of the more important commodities. 

20. Freight operating expenses, divided into state and interstate. 

21. Passenger operating expenses, divided into state and interstate. 

22. Method of apportioning revenues; total for state and interstate 
for three years. 

23. Taxes for three years. 

24. Gross earnings and expenses (probable) for year ending June 30. 
1909. 

25. Rates on most important state commodities. 

26. Total value of property devoted to state business ($45,226,464.50) . 
These findings show the most thorough and painstaking work on the 

part both of the engineering and rate departments of the commission. 
Mr. Calderhead, the rate expert, is not merely thorough^ acquainted 
with rate matters, but seems also to be an able statistician and account- 
ant. Most state commissions of the first rank have separate rate and 
statistical departments. 

IV. 

ENGINEERING DEPARTMENT. 

I spent several hours in consultation with Engineer Henry L. Gray, 
investigating the manner in which the work of his department is con- 
ducted. In oider to ascertain the original cost of construction of the 
railroad propel ^es in the state of Washington, the employees of the 
Commission went to the original records of the railway companies and 

2— rc 



12 REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. 

took off from them the quantities and prices. The engineering depart- 
ment never takes the railroads' figures. The department checks over 
the data furnished by the railway companies by going to the final 
estimates and other data, both in the office of the chief engineer and of 
the auditor. Men are also sent out into the field, in order to check up 
quantities and amounts. The estimates furnished by the railway com- 
panies are generally fairly correct as to quantities; but Mr. Gray has 
found it very necessary to scrutinize such items as can not be checked 
over from the books of the company, such as engineering expenses, legal 
expenses, discount, interest and freight. Mr. Gray prepares his reports 
concerning the different companies in very readable and attractive 
form. These reports generally contain information concerning the 
organization and financial history of the railroad, its physical features, 
its general balance sheet, original cost of construction with all details, 
the cost of reproduction with all details, and the amount of deprecia- 
tion. The work is done in a scholarly and thorough manner, with con- 
siderable attention to special features of the various companies. 

Mr. Gray has prepared complete reports as to the physical valuation 
and other data of the telephone companies of Spokane and Seattle. 
The Commission will soon issue orders in the matter of telephone rates. 

As already stated, the work of valuing the railroad properties has 
been completed. The engineering department goes to the records of 
the railroad companies from time to time in order to keep this valua- 
tion up to date. "Within a few years a new estimate as to the cost of 
reproduction will have to be made, for the reason that the price of labor 
and materials is constantly increasing. 

Mr. Gray employs some eight to ten men, who are at present largely 
engaged in ascertaining the value of some of the utilities, particularly 
telephone and electric light companies. 

V. 

COURT PROCEDURE. 

Chairman Fairchild tells me that in his judgment the two most im- 
portant provisions of the Washington statute are those dealing with 
review of the commission's orders and review of their findings as to 
valuations. Section 86 of the statute provides for a review of the 
orders and the findings of the commission, the application to be made 
to the superior court of the county in which the proceeding was ini- 
tiated. The pendency of any review shall not of itself stay or suspend 
the operation of the order of the Commission, but the Superior Court 
may, in its discretion, restrain or suspend the operation of the order. 
No order restraining or suspending an order of the commission shall 
be made except upon notice to the commission and after hearing, 
and if a supersedeas is granted, the order granting the same must con- 



REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. 13 

tain a specific finding based upon evidence submitted to the court 
making the order and identified by reference thereto, to the effect that 
great or irreparable damage would otherwise result to the petitioner 
and specifying the nature of the damage. In case the order of the 
Commission is suspended, the company must give a bond for the pay- 
ment of such sums as may ultimately be found to have been paid by the 
public in excess of the rates specified in the order of the Commission. 
An appeal thereafter lies to the Supreme Court. The Washington 
statute does not contain the provisions to be found in the Oklahoma 
Constitution, to the effect that the appealing company must keep books 
showing the name of every person who pays a rate in excess of that 
specified in the commission's order, his address, and the amount of the 
excess. 

Chairman Fairchild considers the Washington plan superior to that 
of Wisconsin, where the procedure is one to set aside the order of the 
Commission. If new evidence is introduced in court in Wisconsin, 
it is certified by the court to the Commission, and the Commission must 
then pass again on the whole matter before the court renders its final 
decision. 

Chairman Fairchild was particularly enthusiastic over the provisions 
of section 92 of the statute, providing for a court review of the findings 
of the commission as to physical valuation, with a provision that the 
findings of the Commission as filed or corrected by the courts shall be 
conclusive evidence in any other proceedings of the facts stated in the 
findings as of the date therein specified. In the grain case, in which 
the Washington Commission made a cut of $750,000.00 annually in 
grain rates, the Commission introduced a certified copy of its prior 
findings as to the valuation of the railroads affected, and thus covered 
that part of its case in a minute or two. The evidence being conclu- 
sive on that point, the railroad companies could not make out a case 
of confiscation of property, and consequently did not appeal from the 
decision of the commission. Mr. Fairchild points out that the Minne- 
sota Commission expended over $50,000.00 in securing the valuation 
of its railroad properties (about the same amount as Washington), and 
that when its rate orders were attacked, the Commission had to go into 
the entire matter again before the Master, with the result that the rail- 
ways were enabled to introduce a mass of additional evidence which 
swamped the Master and resulted in an excessively high valuation, 
besides necessitating a very large amount of time in its presentation. 

VI. 

SERVICE AND FACILITIES. 

The Washington statute gives to the Commission adequate powers 
over matters such as service, equipment and facilities over which the 



14 REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. 

California Commission does not at present have jurisdiction. The 
Washing-ton Commission has inspected each of the two hundred rail- 
way stations in the state and has made a large number of orders requir- 
ing additions or betterments in station buildings and improvements in 
facilities. Appeals were taken in some twenty-five of these cases. The 
Supreme Court of Washington has generally sustained the Commis- 
sion's orders. The Commission employs an inspector of safety appli- 
ances and also an inspector of scales for weighing hay and grain. 
Mr. Gray, the engineer in charge of physical valuation, is also doing 
considerable work in the matter of inspecting facilities and equipment. 

VII. 

PUBLIC UTILITIES. 

When I visited the Commission in July of this year, the Commission 
was just entering upon its duties with regard to the regulation and 
control of public utilities. The statute conferring these powers upon 
the Commission was approved in March of this year. The Commission 
had not at that time marked out its work in this connection, but was 
beginning to receive complaints concerning telephone rates and water 
rates. The Commission was also having some little difficulty with 
reference to steamship companies, particularly as to whether or not it 
would be necessary for them to file tariffs with the Commission. 

VIII. 

RATE FIXING. 

The Washington Commission, although it has done preeminently able 
work in the matter of ascertaining the physical valuation of railroad 
properties, has, nevertheless, been careful, in fixing rates, to consider all 
the elements specified in the case of Symth vs. Ames, including original 
cost, present cost of reproduction, density of traffic, density of popula- 
tion, and the market value of stocks and bonds. Chairman Fairchild 
points out that neither the original cost of construction nor the present 
cost of reproduction are necessarily the proper basis for rate fixing pur- 
poses. He referred to two railroads, one of them in a densely populated 
valley and the other in a sparsely settled timber country. It might well 
be that the original cost of construction, and even "the present cost of 
reproduction, are the same, or nearly the same, in these two cases; 
nevertheless, it would be absurd to say that these two railroad prop- 
erties have the same value, either for rate fixing or for any other pur- 
pose. Chairman Fairchild considers the Puget Sound Electric Railway 
case to represent the most advanced work of the Commission. It is the 
first case in which the Commission shows in its findings percentage depre- 
ciation and the cost of reproduction less depreciation so as to ascertain 
present value. The Commission in this case followed Engineer Gillett's 



REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. 15 

method of ascertaining average life of different kinds of equipment, 
salvage value, and percentage depreciation to be charged off each year. 
The order of the Commission in this case was sustained by the Superior 
Court on November 14, 1910, but the case has been appealed to the State 
Supreme Court. 

IX. 

RESULTS ATTAINED BY THE COMMISSION. 

In addition to the Commission's work in connection with the valua- 
tion of its railroads, it has, among other things, accomplished the follow- 
ing work: 

1. It has established joint rates on commodities from eastern Oregon 
to Portland, lower than the sum of the locals, thus effecting a reduction 
in rates amounting to about $100,000 annually. 

2. It has reduced express rates on fruit and vegetables about 20 per 
cent, but has made no general investigation into express rates. Com- 
missioner Jones told me that the Commission felt that it would be very 
necessary to make such investigation shortly. 

3. It has prescribed a general distance tariff, thereby making a reduc- 
tion of about $75,000.00 in rates annually. 

4. It has established a joint rate on wheat from Oregon Railway and 
Navigation Company points in eastern Oregon to Puget Sound points, 
but the Commission's order in this case has been enjoined in the federal 
courts. 

5. It has ordered the installation of connecting tracks wherever one 
railroad intersects or terminates at or near another. The railway com- 
panies have appealed this case from the State Supreme Court to the 
United States Supreme Court. 

6. It has inspected every railroad station in the state, as already 
pointed out, and has made some 200 orders requiring additional station 
facilities. 

7. It has made a reduction of 12 per cent on grain rates of the North- 
ern Pacific, thereby effecting a reduction in rates of $750,000 annually. 

8. It has reduced passenger rates on the Puget Sound Electric Rail- 
way. This case has been appealed. 

9. It has denied the right to install grade crossings in some 100 cases. 

10. It has requested that the legislature give to it the power to 
abolish existing grade crossings. 

11. It has engaged a telephone expert and has made a careful inves- 
tigation into the value of the telephone properties within the state, and 
is now seeking to ascertain whether it can order in a measured rate as 
against the present flat rate. 



16 REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. 



NEBRASKA. 

I. 
INTRODUCTION. 

The State Eailway Commission of Nebraska was created by amend- 
ment to the Constitution adopted on November 6, 1906. The legislature 
of 1907 thereafter adopted a comprehensive railway commission act. 
The Commission succeeded a board of transportation which did little or 
nothing. The statute of 1907 was amended in 1911 with reference to 
the method of review of the decision of the commission. Appeals must 
now be taken directly to the state supreme court and the evidence pre- 
sented before the Commission can alone be considered. 

The Nebraska Commission has power to fix the rates and to regulate 
the service of railroads, express, car, sleeping car, freight, freight line, 
telephone and telegraph companies. The Commission has jurisdiction 
over all railways, including steam, interurban, and street. The legis- 
lature of 1911 placed irrigation companies under the control of the 
Commission. 

The matter of bringing all public utilities, such as gas, light, heat, 
power and water companies, under the control of the Commission has 
been discussed during the last two sessions of the legislature but no 
action has been taken. Under the stock and bond law, however, the 
Commission regulates the issues of stocks and bonds of all public service 
corporations, including gas, light, heat, power, and water companies. 

II. 

ORGANIZATION AND OFFICE SYSTEM. 

1. The Commission. 

The commissioners are Dr. H. J. Winnett, a retired physician, chair- 
man ; Henry T. Clarke, Jr., an attorney ; and W. J. Furse, also an attor- 
ney. The commissioners are selected for six year terms with intervals 
of two years. They receive a salary of $3,000.00 per annum and devote 
their entire time to the duties of their office. 

A regular meeting is held every week and special meetings at other 

times during the week. Chairman Winnett disapproves strongly of 

the election of commissioners. 

i 

2. Employees. 

The employees of the Commission are Clark Perkins, secretary, at a 
salary of $2,400.00 ; U. G. Powell, rate expert at a salary of $2,400.00 ; 
L. E. AYettling, an accountant; E. C. Hurd, engineer in charge of phys- 
ical valuation; a reporter; about four employees of the rate expert; 



REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. 17 

three stenographers in the secretary's office; and some eleven persons 
employed by the engineer in making physical valuations. 

3. Office System. 

Secretary Clark Perkins showed me his office in detail. His largest 
correspondence is in connection with informal complaints. These are 
filed in card board folders which have endorsed thereon the necessary 
data to show the nature and disposition of the case, and may be reached 
through a triple card index. One index refers to the complainant's 
name ; another to the name of the city ; and the third to the defendant 's 
name. The same index covers formal complaints as well. Formal cases 
are filed in flexible card board envelopes and the exhibits are filed in 
boxes in the vault. Applications for approval of changes in rates, 
stock and bond issues and other matters are all filed together in envel- 
opes similar to those used for informal complaints and are indexed 
separately. The next largest class of correspondence is with the tele- 
phone companies, of which there are over six hundred in Nebraska. Mr. 
Perkins has a separate file for each of these companies. All other cor- 
respondence is treated as miscellaneous and is filed alphabetically, ex- 
cept correspondence with other commissions, which is separately filed. 
Mr. Perkins has in his desk two books, one for informal complaints and 
the other for applications. As each complaint and application comes 
in, a number is assigned to it in these books. 

After the board meetings, the secretary himself dictates the entire 
minutes. He then pastes them into a book from which they are later 
copied into the regular minute book, after having been corrected and 
approved. The original minute memorandum book is preserved. 

III. 

STOCK AND BOND LAW. 

House Bill No. 578, Laws of 1909, gives the Commission authority 
to pass on all proposed stock, bond and note issues of all public service 
corporations incorporated or hereafter incorporated under or by virtue 
of the laws of Nebraska, said bonds, stocks and notes to be issued only 
for the " acquisition of property, the construction, completion, exten- 
sion or improvement of facilities, the improvement or maintenance of 
service or the discharge or refunding of obligations." 

While the language of the statute is limited to Nebraska corporations, 
all public service corporations doing business in the state submit their 
proposed stock and bond issues for the Commission's approval, so as to 
remove clouds on the issue and to give additional stability thereto. The 
Missouri Pacific Railway Company, for instance, recently secured the 
Commission's approval of a twenty million dollar bond issue. 

Applications for approval are made on blanks furnished by the Com- 
mission, showing in detail assets, liabilities and purposes of issue. The 



18 REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. 

largest number of these applications have come in from telephone 
companies. The Commission usually approves the applications as a 
matter of form and enters an order approving the issue, specifying 
the purposes for which the proceeds may be used and directing that the 
corporation render to it on blanks furnished by the Commission an ac- 
count of all moneys received from the sale of the stocks and bonds and 
of the purposes for which the money was actually expended. I consider 
the control of stocks and bonds and other securities to be one of the 
absolutely essential duties of a railroad or public service commission, 
and shall discuss the matter in greater detail in connection with the 
work of the Wisconsin, New York, and Texas Commissions. 

IV. 

TELEPHONE COMPANIES. 

The Commission has prescribed a set of forms to be filled out by tel- 
ephone companies, showing exchange rates, toll rates and added service 
to connecting exchanges, and has also prescribed a system of accounting, 
reference to which will be found in the published reports. A large 
number of so-called farmers' telephone companies exist in the state. 

v. 

ELECTRIC STREET RAILWAYS. 

The Commission has control over these railways and has had more 
trouble with them than with any other kind of corporation. The cities 
of Omaha and Lincoln are the only cities in Nebraska having such 
companies. The case of City of Havelock vs. The Lincoln Traction 
Company, 1910 Nebraska Railway Commission Reports, page 98, took 
up a very considerable amount of the Commission's time. 

VI. 

RATE LITIGATION. 

The legislature of 1907, at the time of enacting the present Railroad 
Commission law, also passed statutes (1) reducing express rates 25 per 
cent; (2) establishing a maximum 2 cent passenger fare; and (3) estab- 
lishing commodity freight rates. Each of these statutes was attacked 
in the courts. The Railway Commission secured from the State Supreme 
Court a decision upholding the cut in express rates. The United States 
Express Company has recently appealed the case to the United States 
Supreme Court. 

The passenger and commodity freight rate cases were removed by the 
railroad companies from the state to the federal courts, which courts 
issued restraining orders under which the railways have continued to 
charge their former rates. These cases are good illustrations of the 
length of time appeals from orders of railway commissions may remain 



REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. 19 

in the courts. They were brought in 1907 and have not yet been tried. 
Kate Expert Powell has spent a very considerable amount of labor in 
preparing the state's exhibits in these cases. They are prepared on the 
cost accounting theory. Mr. Powell has made segregation of passenger 
train and freight train operating expenses as to each of the accounts 
prescribed by the Interstate Commerce ' Commission. He and the 
entire Nebraska Commission are of the opinion that the recent decision 
rendered by Judge Sanborn in the Minnesota rate case is unfair to the 
state in the matter of the segregation of state from interstate operating- 
expenses. Mr. Powell seems to be a rate expert of very unusual ability. 

Because of the passenger and commodity freight rate cases, the 
Commission has been unable to issue any further orders reducing pas- 
senger or freight rates. The rate department made a very thorough 
investigation into class rates and issued a tentative order continuing first 
class rates as established, but establishing the spread on a fixed basis. 
In order to secure the necessary data for the order, rate expert Powell 
employed a force of thirty girls, who copied data from each intrastate 
waybill issued by the Rock Island and the Union Pacific during the 
months of July and October, 1908, and January and April, 1909. Mr. 
Powell showed me the bound volumes, of which there must have been 
about thirty, containing this information, by stations. The record as to 
each waybill shows both the compensation which the railroad companies 
received and that which they would have received had the order gone 
into effect. This work cost the Commission some $5,000.00. The Com- 
mission did not finally put the order into effect, for the reason that it 
feared that such action would prejudice the cases already pending in 
the federal courts. 

The experience of the Nebraska Commission and of other commis- 
sions, such as Oklahoma, shows that if the railway companies can once 
get a number of important rate cases into the courts, the hands of the 
Commissions are very largely tied, not merely as to the subject-matter 
of these cases but also as to all other rate matters. There is always the 
fear that reductions in other rates, while these are pending in the courts, 
will create in the minds of the federal judges an impression that the 
Commission is a radical commission which is making excessive reduc- 
tions in rates. 

VII. 

MONTHLY REPORTS FROM RAILROADS. 

The Commission receives from each railroad of the state for each 
month a report on printed forms prescribed by the Commission, show- 
ing for each station the following information as to interstate business. 
both that which is shipped from and received at each station — cars of 
wheat; cars of corn; cars of grain products: cars of live stock: other 
car loads; pounds L. C. L. ; pounds C. L. : revenue L. G. L. ; revenue 



20 REPORT ON RxULROAD AND PUBLIC SERVICE COMMISSIONS. 

C. L. ; passenger ticket sales. The same information is also given as to 
intrastate business, and the amount thereof is then appropriated to 
the state of Nebraska on a mileage basis. This information is important 
as showing the amount of business done at each station, particularly if 
a question arises as to the adequacy of station buildings and facilities 
at any particular point. 

VIII. 

ANNUAL REPORTS. 

Section 9 of the Nebraska Act prescribes a large number of facts 
which must be shown in the annual report. In order to secure the 
necessary facts from the railroads, the Nebraska Commission uses the 
Interstate Commerce Commission form as a basis. In addition to the 
information required therein, Mr. Powell has forced the railroads to 
furnish the total number of passengers and revenue and the total 
volume of freight and revenue moving; (a) entirely within the state; 
(6) originating within and moving out; (c) originating without and 
moving into; (d) moving entirely through without originating or ter- 
minating within. A large number of commissions, following the 
example of Nebraska, use the Interstate Commerce Commission form of 
railroad reports as a basis, and then add certain requirements. 

IX. 

FORM OF ACCOUNTS. 

The Nebraska Commission has prescribed no form of accounts, except 
for telephone companies. Mr. Powell said that the Commission had not 
done so for the reason that if any controversy arises, the Commission 
will have to go into the company^ books anyway. In this respect 
Nebraska differs very materially from .some of the best commissions in 
the country, such as those of Wisconsin and New York, which have pre- 
scribed systems of accounts for practically all the railroads and public 
utilities and which lay great stress on this feature of their work, and 
have established extensive and efficient statistical and accounting depart- 
ments. 

x. 

PHYSICAL VALUATION. 

A statute approved April 5, 1909, provides that it shall be the duty 
of the state railway commission to ascertain the physical valuation of 
each railroad, railway, telegraph, express, telephone, and stock yard 
company within the state, and that it shall make findings as to the total 
value of each railroad, etc., the number of miles of railroad and the 
average value of line or track. The statute also prescribes some nine 
designated elements, the sum of which shall constitute the physical 
valuation. These elements are not in all respects identical with those 



REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. 21 

which are prescribed by the Interstate Commerce Commission. The 
statute shows the danger of having the legislature go into the details of 
a question which is still largely in a formative stage. It would have 
been far wiser, in my judgment, to have provided simply that the Com- 
mission should ascertain the value of the properties of the companies 
specified. The Commission could then go ahead and secure light from 
every possible source and be guided by the court decisions which are 
appearing from time to time on this question. 

Acting under this statute, a force of some twelve men, under Engineer 
E. C. Hurd, has been at work since 1909. The Commission prepared 
forms on which data was to be written by the railway companies and 
secured from them complete profiles, station plats, drawings, and 
designs. This data has now been furnished by all of the railroads except 
the Union Pacific and the Burlington. The Commission's engineers 
check over the quantities from the profiles which are furnished, but do 
no actual checking of quantities in the field. They also ride over the 
line to check up certain physical features, such as stations and other 
buildings, crossings, telegraph poles, fences, rails, general character of 
the land, and character and importance of towns. 

The valuation of the lands was found to be the most difficult task. 
The greatest point of controversy between the railroad commissions and 
the railroads in all the states is the question as to how the right of way 
and terminal grounds of the railroad companies shall be valued. The 
Nebraska Commission first sent out post cards to the leading bankers, 
public men and farmers of the different counties, asking their opinion 
as to the value of land of different designated kinds in their counties. 
Abstract companies were then paid 10 cents a piece for reports as to 
sales of land within a year or two in the vicinity of the right of way. 
A general inspection was then made of the right of way to ascertain 
whether it was better or poorer than the general run of land in the 
neighborhood. Inspection was also made to determine how much more 
a railroad would have to pay above the value of surrounding land by 
reason of the cutting up of farms and damages to property not taken. 
Minnesota found an average multiple of three and applied that mul- 
tiple. Nebraska applied different multiples as conditions varied, rang- 
ing from one and twenty-five hundredths in cities to over three in the 
country, but averaging two and six-tenths in the country. This question 
as to whether any multiple should be used, and if so what multiple, is 
one of the most important questions in connection with securing a phys- 
ical valuation. 

Probably the best work which has been done by the Nebraska engi- 
neering department has been its work on the depreciation of equipment. 
To ascertain the depreciation of freight cars, the engineer went to the 
railroad car accounting records and looked over some fifteen thousand 



22 REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. 

cars of various kinds to find out when they were discarded or rebuilt 
or wrecked or put into work train service, and then drew a curve show- 
ing the results of his tabulation, and thus ascertained the average 
length of life of each type of car. Similar work was performed with 
reference to passenger train cars, engines, work equipment, rails and 
ties. 

The engineer found the items returned by the railroads in accounts 
1 to 33 of the Interstate Commerce Commission to be about right, but 
found it necessary to make very material reductions in the accounts 
covering general expenses, legal expenses, transportation of materials, 
equipment, interest and commissions. 

After receiving the report of its engineer, the Commission notifies 
the owners of the property and sets a time not less than thirty days 
nor more than sixty days, for appearance by the owner, at which time 
he may show cause why the valuation as found by the Commission 
should be altered. The statute contains no provision as to the effect of 
the Commission 's findings nor as to the purpose for which the valuations 
are to be used. 

The findings of the Commission with reference to the valuation of 
the first of the railway companies simply recite, in accordance with the 
provisions of the statute, that on July 1, 1910, the value of the road was 
a certain sum, its mileage so and so much and its value per mile so and 
so much. 

XI. 
ATTITUDE TOWARD PHYSICAL VALUATION. 

The Nebraska Commission regards the cost of reproduction of rail- 
roads, as a basis for fixing rates, somewhat in a light of a hot potato, 
especially since Judge Sanborn in the Minnesota case held that the 
railroads are entitled to a 7 per cent return on the extremely high cost 
of reproduction found in that case, ignoring the other elements sug- 
gested in Smyth vs. Ames. The commissioners, when I asked them what 
they were going to do with the valuation when they ascertained it, said 
that they did not know. Because of Judge Sanborn's decision and of 
the uncertainty as to what test the United States Supreme Court may 
ultimately establish as the proper basis of fixing rates, the Nebraska 
Commission seems to assume a half-hearted attitude towards the entire 
question of physical valuation. 

XII. 

NEW PROCEDURE ON APPEAL. 

The legislature of 1911 amended section 7 of the Railway Commission 
Act by providing that proceedings to reverse, vacate or modify orders 
of the state Commission shall be brought directly in the Supreme 
Court of the state ; that the evidence taken before the Commission shall 



REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. 23 

alone be considered; that the time of appeal shall be limited to three 
months and that no order shall be held up without the filing of a 
supersedeas bond to be first approved by the Commission. These pro- 
visions are in line with those contained in the most recent statutes, 
except that they are not as complete or as far-reaching as those now 
obtaining in Washington, "Wisconsin and Oklahoma. 

Commissioner Clarke told me that in his opinion there is no doubt, 
as the constitution of Nebraska now stands, that these provisions are 
valid. The first test of these provisions will probably be made in con- 
nection with an order of the Commission directing the erection of a 
brick station building at Wayne. A request by the railroad for a certi- 
fied copy of the proceedings before the Commission in this matter came 
in while I was visiting the Commission. 

XIII 
CHANGES IN SCHEDULES. 

The statute provides that the carriers shall file with the Commission 
all their schedules of rates in effect on January 1, 1907 (this being 
before the date of the statute), and that thereafter no rate shall be 
changed, either raised or lowered, without the Commission's consent. 
Dr. Winnett thinks that this is a salutary provision and that it tends 
to produce stability of rates. The Commission approves reductions 
almost as a matter of course, but almost always holds a hearing in cases 
of a contemplated increase. 



24 REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. 



MINNESOTA. 

I. 

INTRODUCTION. 

The Railroad and Warehouse Commission of Minnesota was created 
by act of 1899. The Commission has jurisdiction over all railroads 
except street railways (in so far as relates to the carriage of persons and 
property wholly within the limits of a municipality) and also over all 
express companies and public warehouses, including commission houses 
and grain elevators. The Commission does not have control over public 
utilities. A proposition to extend the jurisdiction of the Commission 
over such utilities was presented to the last legislature but was defeated 
by the rural telephone companies, who objected to the clause giving to 
the Commission power to order in physical connections between tele- 
phone companies. Commissioner Elmquist was of the opinion that a 
public utilities statute containing the telephone physical connections 
clause would be passed by the next session of the legislature. 

Minnesota does not have a stock and bond law nor a public con- 
venience and necessity law. The work of the Commission is limited to 
the fixing of rates and the regulation of service of railroads and 
express companies and public warehouses, as above indicated. 

II. 

ORGANIZATION AND OFFICE SYSTEM. 

1. The Commission. 

The commissioners are Judge Ira B. Mills, chairman, Charles P. 
Staples, and Charles E. Elmquist. Judge Mills is a lawyer and has 
been a member of the Commission for more than ten years. Mr. Staples 
is a farmer, a man of considerable dignity and apparently much ability, 
and has also served more than ten years. Mr. Elmquist is a younger 
man, a lawyer, energetic and apparently well posted, and has been a 
member of the Commission about four years. 

The commissioners are elected for a term of six years, and receive a 
salary of $4,500.00 per annum. They devote their entire time to the 
duties of the office, and are in the office every week day, except when 
one of them is out on an inspection tour. Commissioner Elmquist was 
strongly opposed to a board of five members for the reason that three 
can do much better executive work. 

2. Employees. 

The employees of the Commission are A. C. Clausen, secretary, who 
attends largely to the warehouse business of the commission and pre- 



REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. 2o 

pares a part of the annual report ; Thomas Yapp, assistant secretary, 
who attends to the details of the railroad and express work of the 
Commission and is an active and capable man; D. J. Jurgensen, engi- 
neer in charge of physical valuation ; one rate clerk (but no rate expert) ; 
two clerks and three stenographers. The act of April 13, 1911, appro- 
priates the sum of $30,000.00 for the annual expenses of the Commission. 
This does not include the amount of money expended in the Minnesota 
rate case. 

3. Office System. 

But little attention is paid by the Commission to the matter of office 
system. No minutes are kept. Orders are prepared informally and 
sent out by letter. Most of the business of the Commission is done 
informally in the office. Schedules of rates are filed by railroads and 
are indexed in a book. Mr. Yapp prefers a book to a card system by 
reason of its greater permanency. 

III. 

EXPRESS INVESTIGATION. 

I went quite thoroughly into the investigation which the Minnesota 
Commission has been conducting into the express rates of Wells-Far go 
& Company. The Commission was told by Wells-Fargo & Company that 
they could not secure the information which they desired except by 
sending a force of men to the New York office of the express company. 
The Commission, accordingly, sent a number of men to New York, where 
they spent something over a year in going over all the waybills covering 
a period of two months. Mr. Yapp showed me the books — about nine 
feet of them — into which the transcript of the records of the Express 
Company in New York was made. These books contain spaces for the 
names of the places of origin and destination of each package affecting 
Minnesota business, and also columns for the different rates ; thus, a, 
b, c, d, e, 10, 15, etc., up to and including 100, and separate books for 
the special rates on poultry, milk, laundry, beer, and a few other com- 
modities. There are also separate books for interstate, intrastate, intra- 
interstate, and inter-intrastate shipments. The books also show the 
revenue derived, the number of transactions and number of packages 
and, in the case of the interstate business, the amount of the revenue 
chargeable to Minnesota. This amount is ascertained on the "rate- 
prorate" basis; i. e., the rate from the outside point to the Minnesota 
gateway through which it passes is to the rate from the Minnesota gate- 
way to the Minnesota point, as the earnings received by the express 
company are to the amount of earnings assigned to Minnesota. The 
receipts from money orders, custom house brokerage, and similar items 
were taken off for the whole system, and a proportion of them was then 
allocated to Minnesota. 



26 REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. 

The Minnesota employees went through some nine million waybills 
in New York City to ascertain those affecting Minnesota business, and 
found some 125,000 for the month of August, 1909, and 225,000 for 
the month of December, 1909. Wells-Fargo & Company likewise had 
a force of men examining the same waybills. Mr. Yapp told me that 
this work had cost the Minnesota Commission some $30,000.00. It is the 
most thorough work which has been done in this country in the matter 
of express investigations. 

The testimony concerning the express end of the business had all been 
presented when I was in St. Paul, and I read over the entire transcript. 
The express company presented no evidence. I have no doubt whatso- 
ever that the express company is simply waiting to tie the hands of the 
Commission in the courts. The Minnesota Commission is also examining 
the railroad end of the express business, and will take testimony as to 
this matter before finally deciding the case. I examined carefully all 
the exhibits introduced by the state, for the purpose of using this 
information in our own express investigation. 

The results secured by the Minnesota Commission showed that the 
express company was making a profit of some 18 or 19 per cent on that 
part of its property which could fairly be chargeable to its state busi- 
ness, and some 74 per cent on that part of its Minnesota property which 
is chargeable to the interstate business. 

IV. 

MINNESOTA RATE CASE. 

The legislature of 1907 passed a 2 cent maximum passenger fare law 
and a maximum commodity freight law. The passenger rates went 
into effect, and the freight rates were about to go into effect when stock- 
holders of the railroads affected secured an injunction from the federal 
courts. The matter was thereafter referred to Commissioner Otis as 
referee. After taking some twenty volumes of testimony and going into 
the entire matter of valuation of the Minnesota railroads de novo, 
regardless of the finding of the Minnesota Commission therein, Com- 
missioner Otis rendered a report which was affirmed by Judge Sanborn 
in the now famous Minnesota rate decision. Judge Sanborn disregarded 
every basis of rate fixing except that of the cost of reproduction of 
the property and found a cost in this case, which, according to the gen- 
eral consensus of opinion, is at least 50 per cent in excess of the cost as 
shown by the evidence in the case. He also found an interference by 
the proposed state rates with interstate commerce. 

The Minnesota Commission, as well as the other Northern and Middle 
Western Commissions which I visited, are very much exercised over the 
Minnesota rate case. I had a talk with Judge O 'Brien, who is handling 
the case for the state before the United States Supreme Court. He told 



REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. 27 

me that the motions to hear the Oregon, Missouri, and Arkansas cases 
contemporaneously with the Minnesota case at the October term had 
been granted. Judge O'Brien pointed out the enormous variance 
between the original cost and the present assigned value of the railroad 
properties involved in the case. He regards the four hundred foot strip 
of right of way acquired from the government as a franchise on which 
the railroad is not entitled to a return. He also denies the right of the 
railroads to multiply the present market value of the land by a multiple 
to represent the increased cost of securing the same. Judge O'Brien 
thought that he saw a preconcerted plot on the part of the railroads to 
urge on a number of the state commissions to adopt the cost of repro- 
duction as the basis of rate fixing. 

The Minnesota commissioners pointed out to me that as to more than 
half of the railroads of the state, the value of the stock and bonds is 
greater than the Commission's estimate as to the value of the prop- 
erties, but is less than the cost of reproduction as returned by the rail- 
way companies. To meet the decision in the Minnesota rate case, the 
legislature of 1909 passed a statute providing that whenever a common 
carrier resists the enforcement of an order of the Commission prescrib- 
ing rates, it shall be the duty of such carrier to keep an account of 
every charge made by it for any service to which such rates apply, 
showing in each case the name and address of the consignor and con- 
signee, the date of the transaction, the stations between which the busi- 
ness was carried, and the amount actually charged, and that which 
would have been charged under the rates prescribed by the Commis- 
sion. A report containing these matters must be made to the Commis- 
sion every month. Within sixty days after the final determination of 
the proceedings, the carrier must pay to the Railroad and Warehouse 
Commission, for the benefit of the parties entitled thereto, all sums col- 
lected by it in excess of the rates finally prescribed by the court, with 
interest, and the Commission thereupon pays out these moneys to the 
parties entitled thereto. All amounts not claimed are paid by the Com- 
mission into the state treasury for the benefit of the general revenue 
fund. Under this statute, the railroads involved in the Minnesota rate 
case are now keeping books and making returns to the Commission. 

In concluding this subject, I would say that the Minnesota Commis- 
sion is even more exercised over the decision with reference to the rate 
fixing basis than over that part of the decision which refers to interfer- 
ence with interstate commerce. 

V. 

FEDERAL COURTS. 

One of the greatest difficulties facing certain of the state commissions 
in districts in which the federal judges seem to be unfriendly, is the 
3 — RC 



28 REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. 

facility with which the corporations can secure from such judges 
restraining orders and temporary injunctions tying the hands of the 
Commission for several years, until the cases are determined. However 
carefully a statute may prescribe the procedure in cases on appeal from 
the orders of the Commission, the federal courts are not bound by such 
provisions and proceed according to their own rules. Chairman Mills, 
while chairman of the committee on legislation of the National Asso- 
ciation of Railway Commissioners, accordingly presented, and the 
association adopted, a resolution to be adopted by the different state 
legislatures, calling upon their representatives in congress to pass a 
statute providing that litigation affecting state railway and public 
service commissions should be carried through the state courts first 
before being taken into the federal courts. The Minnesota legislature 
passed such a resolution, but no other state has done so. 

VI. 

CHANGES IN RATES. 

Changes in rates become effective on ten days' notice, but only if 
approved by the Commission. Mr. Yapp thinks it a wise provision to 
have the Commission approve every change in rates. He considers this 
method a very desirable one for the reason that the Commission in this 
way secures a whip handle. 

Reductions in rates are allowed as a matter of course, but if they 
affect common points Mr. Yapp generally telephones to the other com- 
panies affected and asks them if they wish to put in the same rate. This 
is done in a spirit of fairness to prevent one railroad from securing an 
advantage over others by means of "midnight tariffs." 

VII. 

GRADE CROSSINGS. 

The statutes of Minnesota do not give authority to the state Com- 
mission to prescribe a separation of grade crossings. Mr. Yapp told 
me that these matters were taken care of by the city authorities and 
that no authority to order a separation of grades exists as to those 
portions of the state which are outside of city limits. He thinks it 
well to handle the problem while it is in its infancy, as proposed in 

California. 

VIII. 

PHYSICAL VALUATION. 

I had a long talk with Engineer Jurgensen with reference to the 
work of the Commission in ascertaining the value of the railroads of 
Minnesota. This work took about three years. The Commission 
employed some two to fifty men, with an average of about sixteen to 
eighteen. During the first year, but little was accomplished. It was 



REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. 29 

found impossible to ascertain the original cost of construction. The 
railroad companies furnished to the commission information concerning 
the present value of their systems. The chief work of the engineering 
department of the Commission consisted in checking over these returns. 
To ascertain the value of the rights of way of the railroads, abstracts 
of sales in the vicinity were taken from the records. A total of about 
1.500,000 sales were examined by the Commission in reaching its con- 
clusions. Considerable difficulty was encountered on the question as to 
how to estimate the cost of reproduction. The railroads contend that 
this means the cost of acquiring the lands as of to-day and that they are 
entitled to multiply the present real value of adjacent lands by some 
multiple such as the figure three in order to ascertain the present cost of 
reproduction. The Commission denies the right to use such a multiple. 
The Commission accordingly prepared valuations on both theories. 

Xone of the railroads made returns as to the present value of their 
properties. Their returns were simply as to the cost of reproduction. 
It is impossible for the Commission, by reason of the age of the railroads, 
to ascertain the original cost, otherwise it certainly would have done so. 

The statutes of 1909, chapter 147, provide that the Commission shall 
at all times keep up the physical valuations of the railroads of the 
state. Under this statute the engineer sends out each year forms for 
additions and betterments and deductions. 

IX. 

FORM OF ACCOUNTS. 

Chapter 327 of the Laws of 1911 makes it the duty of every railroad 
to keep its accounts in such form as to show the total revenue and the 
total operating expenses connected both with local and through traffic, 
the number of tons of freight carried one mile both on local and 
through trains and the total car, engine and other mileage of both 
interstate and intrastate freight. The Commission is now engaged 
in working out the form of these accounts. There is no doubt in my 
mind that this statute is the direct result of the decision in the Min- 
nesota rate case and that its purpose is to force the railroad companies 
to keep their accounts at all times in such condition as to enable the 
state Commission to secure readily the information necessary in case 
any of its orders fixing rates are attacked. 

X. 

SERVICE AND FACILITIES. 

Considerably over three fourths of the present work of the Com- 
mission deals with matters affecting service and facilities. About 
95 per cent of these matters are settled informally by drawing them 
to the attention of the railway company affected. This experience of 



30 REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. 

the Minnesota Commission emphasizes the necessity of giving the 
State Eailroad Commission control over these matters in addition to 
the control of rates. 

XI. 

INTERSTATE COMMERCE. 

The Commission takes up with the railroads a large number of mat- 
ters affecting interstate commerce and settles most of them informally. 
In this way, the Commission performs a great service for the citizens of 
Minnesota. If the matter is one of public importance, the state Com- 
mission files the petition with the Interstate Commerce Commission, 
appears as party complainant and conducts the litigation at the expense 
of the state. 

XII. 
ACCIDENT REPORTS. 

Whenever an accident occurs in connection with railroad operation, 
the railroad company at once telephones or telegraphs to the Commis- 
sion; then follows a preliminary accident report and later a final 
report. These reports are kept in a large file arranged consecutively 
by numbers. An index kept in a large book shows the name of the town 
or city, the name of the person, the date of telegraphic or telephonic 
report, the date of the second and third reports and the number of the 
case. These reports are entered by railroads and are arranged alpha- 
betically. 

XIII. 
LITIGATION. 

The legislature of Minnesota in its sessions for 1905, 1907. 1909 
and 1911, passed a large number of special acts affecting the Com- 
mission. Nearly all of these acts deal with matters of detail as to 
which, in my judgment, it would have been wiser to have given general 
powers to the Commission. For instance, special acts were passed to 
provide that railroads must use the same names for stations as the 
names of the cities within which the stations are located ; that the time 
of the arrival of passenger trains must be bulletined ; that the commis- 
sion shall have jurisdiction over track scales ; that the commission shall 
have authority to keep up physical valuations from year to year; 
that railway companies shall clean ditches and culverts along roadbeds, 
etc. The difficulty which Minnesota has had with these matters would 
seem to show the wisdom of giving to the Commission general powers 
by statute over all matters affecting the rates and service of the public 
service corporations affected. The Commission can then work out the 
details in such manner as experience may show to be wise. 



REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. 31 



WISCONSIN. 

I. 

INTRODUCTION. 

The Railroad Commission of "Wisconsin was created by statute of 
1905, and is largely the work of the then Governor, Robert M. La Fol- 
lette. Before that time, the state had a railroad commissioner, whose 
chief function was to publish the reports transmitted by the carriers. 
In 1907, the legislature also passed a public utilities law conferring 
upon the state railroad commission authority over public utilities. Both 
these statutes were amended in 1909 and 1911. Under the railroad 
commission statute, the Commission has jurisdiction over commercial, 
street and interurban railways, express companies, telegraph companies 
and common carriers. Under the public utilities law, it acquired addi- 
tional jurisdiction over telephone, heat, light, water and power com- 
panies, including those owned or operated by municipalities. 

Wisconsin has a stock and bond law enacted in 1907 and materially 
amended in 1911 ; a public convenience and necessity law enacted in 
1907 ; and an indeterminate permit law providing indeterminate fran- 
chises and for purchase by municipalities, enacted in 1907 and materi- 
ally amended in 1911. 

II. 

ORGANIZATION AND OFFICE SYSTEM. 

1. The Commission. 

The commissioners are John H. Roemer, chairman, Halford Erick- 
son and David Harlowe. The statute provides that one of the com- 
missioners shall have a general knowledge of railroad law and that each 
of the others shall have a general understanding of matters relating 
to railroad transportation. Mr. Roemer within the last year took the 
place of Professor B. H. Meyer, who was recently appointed to the 
Interstate Commerce Commission. Mr. Roemer is an attorney and 
performs all the legal work of the Commission. Mr. Erickson was 
formerly a railroad auditor and is an economist and statistician of very 
exceptional ability. He seems to secure the data for most of the rate 
decisions of the Commission, and has worked out carefully a plan for 
the segregation of operating expenses between freight and passenger 
traffic. He is also practically the head of the department of statistics 
and accounts, one of the most important departments of the Com- 
mission. Mr. Harlowe was recently appointed on the resignation of 
Professor Meyer. He was traffic manager of one of the large Milwaukee 
commercial firms. 



32 REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. 

The commissioners are appointed by the Governor for periods of 
six years and receive a salary of $5,000.00. All of them devote their 
entire time to the work of the Commission. Mr. Roemer tells me that 
he often works into the night and I am confident Mr. Erickson does the 
same. In my opinion the splendid work of the Wisconsin Commission 
is largely due to the ability of the commissioners and to their close 
personal attention to the work. A spirit of scholarly accuracy and 
thoroughness pervades the entire work of the Commission. The Com- 
mission takes no short cuts and makes very few guesses. Every problem 
is worked out with great care and no decisions are rendered until the 
Commission has all the facts at its disposal. In my judgment, the 
thorough and scholarly spirit of the work is largely the result of 
the intimate relation which exists between the Commission and the 
professors and alumni of the State University. 

2. Employees. 

The Commission divides its work into three department (1) adminis- 
trative; (2) engineering; (3) statistical and accounting. 

The administrative department, besides the commissioners, consists 
of J. M. Winterbotham, the secretary, who receives a salary of $2,500.00 
per year; a clerk for each commissioner, to work up law points and 
digest testimony; and about a half dozen stenographers and reporters. 

The engineering department is headed by Professor Pence, professor 
of railway engineering in the University of Wisconsin. The work of 
this department is subdivided into the work of physical valuation, and 
service and field inspection. To perform the work of physical valuation, 
Professor Pence has men who are especially qualified to value real estate, 
railroad properties, gas and electrical plants, water works, telephone 
plants, etc. Professor Burgess of the Department of Mechanics, of .the 
State University, is advisor in the work of service and field inspection. 
This work also is subdivided, Mr. Cadby having charge of gas, electric 
and telephone inspection, Professor Mack of the water plants, etc. 

The statistical and accounting department is headed by Mr. Edwin 
Gruhl, who has immediate charge of the statistics and accounts of the 
public utilities, while Mr. Schneider has charge of similar work in 
connection with railway and express work. Mr. Hogan and one assis- 
tant have charge of railway and express tariffs. Some five or six 
men in the department are occupied all the time with matters in con- 
troversy before the Commission and special problem work. 

3. Office System. 

The secretary receives and distributes all mail. All letters when 
answered are returned to him and he sends out the answers in the name 
of the Commission by himself as secretary. All formal and informal 
complaints are separately numbered and filed both as to railroad cases 



REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. 33 

and public utility cases. A separate file is also kept for all applica- 
tions, such as for leave to issue stock and bonds and to build extensions. 
An alphabetical file is also kept. 

III. 

PROCEDURE ON APPEAL. 

The Wisconsin Railway and Public Utilities acts both provide for an 
action in the Circuit Court of Dane County to set aside the orders of the 
Commission. If any new evidence is presented, the court must certify 
the case back to the Commission, which then reviews its order in the 
light of the new evidence, and thereafter returns its findings to the 
court. An appeal directly to the Supreme Court was not provided for, 
because of a constitutional difficulty involving a question whether an 
appeal would lie directly to the Supreme Court from an administrative 
board. The legislature of 1911 passed an amendment to the Railway 
and Public Utilities acts providing for notice to stockholders and bond- 
holders, by publication, in case of the acquisition of a public utility by 
a municipality, so that they might have their day before the Commis- 
sion. Mr. Roemer is of the opinion, under the Prentiss case, 211 U. S. 
210, that if the state statute provides the procedure for an appeal, with 
power on the part of the court to revise the rate, that procedure must 
be followed before the case can go into the federal courts. Mr. Roemer 
prefers the Wisconsin procedure to the right of review provided by the 
Washington statute, for the reason that he doubts the applicability of 
a writ of review to a case in which the Commission is authorized to con- 
sider evidence extraneous to the record. This objection has not pre- 
vailed in other states, such as New York, Nebraska, and Oklahoma, in 
which the remedy is review, and in which no point has ever been raised 
to the effect that this is not the proper remedy. The New York Com- 
mission, however, is careful to put into the record all the evidence, so 
far as possible, which was in any way considered by it. Mr. Roemer 
states that the practical effect of the Wisconsin procedure is to force 
the corporations to apply for a rehearing before the Commission — this 
rehearing being granted as a matter of course. 

IV. 

RATE FIXING. 

The rate fixing basis of the Wisconsin Commission, as explained to 
me by Chairman Roemer and Commissioner Erickson, is the cost of 
reproduction of the properties affected, subtracting depreciation and 
adding an amount for going concern value. In determining the present 
value, the Commission disregards density of traffic, density of popula- 
tion, and market value of stocks and bonds. In response to a sugges- 
tion that the Oregon, Nebraska, and Minnesota commissions were very 



34 REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. 

much concerned over the physical valuation basis for rate fixing and to 
the possibility of an unreasonable increase in rates resulting from in- 
crease in land values, Chairman Roemer said that he could not see the 
justice of permitting an increase in land values to owners adjacent to 
a railroad and denying the railroad a return on its own increased value. 
He admitted, however, that a real problem arises from the great increase 
in the value of terminal property and also that a limit will have to be 
placed on rates based on increasing land value. Very few of the Com- 
missions seem to have thought as far as this, and none of them to have 
reached a solution. Chairman Roemer believes that a railroad or 
utility is entitled to a rate of six per cent on its market value, this 
being usually sufficient for five per cent interest on its bonds and seven 
per cent on its capital stock. 

The rate multiple hitherto used by the Wisconsin Commission has 
been two and a half. Commissioner Erickson has serious doubts as to 
whether any amount ought to be allowed over the value of the adjoin- 
ing property. He seems to differ from Chairman Roemer as to whether 
a railroad should be entitled to a return on rights of way granted by 
federal or state governments, Mr. Roemer being of the opinion that a 
return should not be allowed, while Mr. Erickson favors a return to 
make up for the first lean years of operation. The Commission never 
allows a return on franchise values except to the extent that a railroad 
or utility actually paid for the franchise. 

Formal case No. 32, known as the Buell case, shows clearly the rate- 
making theory of the Commission, and is probably the most important 
case wmich the Commission has decided. The bases there laid down w r ere 
followed by the Federal Post Office authorities when they asked for 
information from the railway companies as to revenue and cost of oper- 
ation of all kinds of passenger train business, including particularly 

the mail business. 

V. 

STOCK AND BOND LAW. 

Chapter 576 of the Laws of 1907 provides for the approval of the 
Commission before any public service corporation can issue stock, stock 
certificates, bonds, notes, or other evidences of indebtedness, payable 
not less than one year from date. This statute gave the Commission 
no discretion as to approval and no power to impose conditions, nor 
did it specify the purpose for which the money was to be used. I 
understand that these matters were all remedied and the powers of 
the Commission materially enlarged by an act of the legislature of 
1911, adopted just before I reached Madison. 

Foreign corporations owning railroads and utilities in Wisconsin 
consider themselves bound by the law. The general law of Wisconsin 



REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. 35 

has for some time provided for a fee to be paid on an increase of capital 
stock, but has never contained a provision for a fee on an issue of 
bonds. Another act of the legislature of 1911 accordingly provides 
that upon an approval of a bond issue by the Railway Commission, the 
corporation affected must pay a fee of $1.00 on $1,000.00; if this statute 
had been in effect in 1910, the fees derived from it would have paid 
the entire expenses of the Commission. The imposition of such a fee 
is fair, for the reason that the approval of the governmental author- 
ities to a bond issue generally results in a raise of a point or two in the 
sale price of the bonds. It will be well to bear this point in mind, in 
framing the new California statute. 

VI. 

INDETERMINATE PERMITS. 

Chapter 578 of the Laws of 1907 provides for indetermediate permits 
for street railways, and sections 74 and 86 of the Public Utilities Act 
of 1907 provide a similar permit for heat, light, water, and power 
companies in municipalities. An indeterminate permit is a permit 
running without limit as to time and having attached thereto the fol- 
lowing two conditions: 

1. If any public service corporation within a municipality has com- 
plied with the requirements of the statute as to the surrender of exist- 
ing permits or franchises and has thereupon secured by operation of 
the statute an indeterminate permit, no license, permit or franchise 
shall be granted to any similar concern within the same municipality 
unless the Commission finds that public convenience and necessity 
require such second public utility. 

2. "the corporation, by acquiring such indeterminate permit, consents 
to the purchase of its plant by the municipality in which it operates, 
at a price to be fixed by the Railroad Commission, with the right of 
appeal to the courts on the question of the price. 

Chairman Roemer considers these provisions concerning indeter- 
minate permits as the very foundation stone of the regulation of street 
railroads and other public utilities in Wisconsin. The period within 
which the corporations might bring themselves within the terms of the 
statute was extended to January 1, 1911, but only 25 per cent of the 
public service corporations availed themselves of the privilege. The leg- 
islature of 1911 finally took the bull by the horns and provided that 
all permits, franchises and licenses theretofore granted by any public 
authority were by that act amended so as to be indeterminate permits, 
with the characteristics hereinbefore mentioned. Chairman Roemer is 
strongly in favor of this kind of permit and states that the only reason 
why other states have not followed the lead of "Wisconsin in this matter 



36 REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. 

is that they do not understand this kind of permit. He points out the 
following advantages accruing to the corporations : 

1. They receive what is in effect a perpetual franchise. 

2. They are relieved of the necessity of providing an amortization 
fund. 

3. They are assured a fair price in case their plant is purchased by 
the municipality within which they operate. 

Such permit, on the other hand, is of great benefit to the state because 
it brings the public service corporations directly under the control of 
the Commission, avoids cut-throat competition and gives municipalities 
the power at any time to purchase the public utilities within their limits, 
at a fair price. 

Chairman Roemer was of the opinion, however, that it would not be 
wise to pass such a statute in California until the situation resulting 
from divided control of public utilities between state and local authori- 
ties has been clarified. 

VII. 

USE OF FACILITIES BY OTHER UTILITIES. 

Section 794m-4 of the Public Utilities Law provides that all public 
utilities having conduits, subways, poles or other equipment on or under 
any street or highway shall for a reasonable compensation permit the 
use of the same by any other public utility whenever public convenience 
requires such use. Chairman Roemer considers this to be an important 
provision and upon his suggestion the legislature of 1911 added to the 
section provisions for physical connections between telephone systems 
in such cases and under such conditions as might be prescribed by the 
Commission. Wisconsin and Oklahoma have shown clearly the public 
benefit derived from physical connections between telephone systems. 

Yin. 

PHYSICAL VALUATION. 

1. Railroads. 

The valuation of the railroad properties of Wisconsin was begun in 
1903 and completed several years ago. In 1909 a new valuation of the 
land of all the railroads was made by the Commission and it was found 
that the value had gone up considerably. The railroads now render 
each year statements of additions and deductions similar to those ren- 
dered in Minnesota. The Commission usually accepts the statements of 
the larger railroads, which have men regularly employed in the work, 
but finds it necessary to check up the work of the smaller railroads. 

2. Utilities. 

There are about one thousand utilities in Wisconsin. Of these the 
Commission has valued some fifty, being those involved in complaints 
pending before the Commission. No valuation of utilities had been made 



REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. 37 

except in case of complaint as to rates. The Commission never decides a 
case involving the rates of a public utility without having first ascer- 
tained the value of its property. The work of valuation of utilities is 
divided among the branches of the engineering department. A hearing 
is always held by the Commission after the engineering force has com- 
pleted its report, and the Commission then makes its findings. 

The statute contains no provision similar to that of Washington for a 
court review of findings as to value. As no valuations of utilities 
have been made except in cases pending before the Commission, the 
Washington provisions would have served no purpose in Wisconsin in 
so far as the valuations have hitherto been made. 

IX. 

DEPRECIATION ACCOUNT. 

Section 1797m-15 of the Public Utilities Act provides that each utility 
must on the order of the Commission carry an adequate depreciation 
account out of operating revenues, in an amount prescribed by the Com- 
mission, for the purpose of keeping the property in efficient condition. 
The money in this fund may be expended for new construction, exten- 
sions or additions and for no other purpose. The Commission has not- 
prescribed a general percentage but does prescribe a percentage in such 
rate cases as it decides. The Commission directs its statistical depart- 
ment to ascertain the average life of the plant and of the different 
component elements thereof and then establishes a percentage of depre- 
ciation so that if the money is put out at interest for the given number 
of years the value of the plant will have been replaced. The money so 
set aside may be used for other purposes, such as new construction, but 
when the money derived from the sale of new construction bonds is 
realized, the amount taken from the depreciation account is returned 
with interest. Commissioner Erickson considers this matter as one of 
considerable importance. The ordinary corporation is more interested 
in declaring large dividends than in setting aside funds for the replace- 
ment of its property. 

X. 

PUBLIC CONVENIENCE AND NECESSITY LAW. 

Chapter 454 of the Laws of 1907 provides that no railroad corporation 
shall begin the construction of any proposed line of railroad or make 
any extension to an existing line without having first secured from the 
Commission a certificate that public convenience and necessity require 
such construction. Before the railroad is operated, it must be inspected 
and approved by the Commission. This matter has been worked out in 
greater detail in the New York statute. It is one of very considerable 
importance, because it gives to the Commission the power to prevent 
cut-throat competition and wasteful duplication of plants on which the 
public must pay interest in the form of rates. 



38 REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. 

XI. 

RATE CHANGES. 

Up to 1911, the Wisconsin statute provided that no changes should be 
made in the rates of a railroad or public utility except upon notice to 
the Commission. The time in case of a utility was ten days and in case 
of a railroad thirty days. Unless objection was made, the rate went into 
effect without further action on the part of the Commission. In other 
words, the approval of the Commission was not a condition precedent 
to the effectiveness of the rate. The result was that there was very 
little work for the railroad rate department and this work was all done 
by one rate man and one assistant. The legislature of 1911, however, 
amended the existing statute so as to provide that no changes might go 
into effect without the precedent approval of the Commission. The 
commissioners are somewhat doubtful as to the wisdom of this change. 
They think that the railroads may possibly use this provision as a 
pretext for refusing to establish the rates desired by shippers. The 
Wisconsin Commission seems to have done very little work in fixing 
railroad rates. 

XII. 
MUNICIPAL COUNCILS. 

I have already stated that utilities owned by municipalities come 
within the jurisdiction of the Commission to the same extent as other 
utilities. 

Under section 1797m-87, of the Public Utilities Law, municipal coun- 
cils have power in the first instance to determine the quality and 
character of each kind of product or service and the terms of occupation 
of streets, but not the power to fix the rates. Even as to the rights 
exercised by the councils, the Commission has the right to review their 
action and to set aside their ordinances. The Commission recently 
declared null and void a city ordinance directing the completion by a 
public utility within sixty days of work which could not reasonably be 
performed in less than nine months. 

It should be noted that the only powers of regulation or control 
exercised by municipal councils are those which are particularly men- 
tioned in 1797m-87 and that as to these powers, the Commission has the 

right of review. 

XIII. 

GAS, ELECTRIC AND TELEPHONE INSPECTION. 

This work is carried on by a branch of the engineering department 
under the immediate charge of Mr. Cadby. For the purposes of elec- 
trical inspection, the state is divided into four districts with one man 
in charge of each district. One man supervises all the gas plants in the 
state. Another is engaged in telephone inspection. Two men are in 



REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. 39 

the office, in addition to Mr. Cadby, making a total of nine men engaged 
in this work. 

The work is done as follows : 

1. Gas and Electric Service. 

Sections 1797m-22 to 25 of the Public Utilities Law provide that the 
Commission shall prescribe the standard commercial units of product or 
service, standards for the measurement of quality, pressure and voltage, 
and rules and regulations, and shall examine and test appliances used 
for measuring the product and service of public utilities. Under these 
sections, the Commission, after numerous conferences with the inter- 
ested corporations, prescribed its order, U-21 — in re standards for gas 
and electric service in the State of Wisconsin, 2 W. R. C. R. 632-662. 
These rules, established on July 24, 1908, have remained unchanged. 
Acting .under these sections of the statute and this order, the Commis- 
sion keeps inspectors constantly in the field making inspections of plants 
and meters and service, examining complaints and advising proprietors 
of plants how to remedy defects in service. The inspectors, while trav- 
eling, also fill out reports as to the service on the railroads over which 
they are traveling. These reports are turned in monthly with their 
expense accounts and are then sent to the railroads affected. The 
inspectors are all University of "Wisconsin graduates and are paid 
between $90.00 and $125.00 per month. 

2. Telephone Service. 

The department is carrying on a detailed investigation into telephone 
service within the state. Men are sent to the different cities of the state 
with instructions to make one hundred and twelve telephone calls, of 
which twelve are at pay stations. These men note the time which expires 
before central answers, the time thereafter before the party at the 
other end answers, and the frequency of "busy" and "don't answer" 
replies. The results of these trials are then platted and sent to the 
telephone companies affected. Very marked improvements in the service 
are said to have resulted from these tests. 

XIV. 

RATE DEPARTMENT. 

Mr. Hogan has charge of the filing of schedules of rates of charges 
in so far as railway, express and telephone companies are concerned. 
The Commission has not yet worked out a form for the filing of the 
schedules of public utilities, and few, if any, such schedules are on file. 

Up to the present, the chief work of Mr. Hogan and his assistant has 
been to prepare information for the Commission in rate cases. The 
Commission's usual practice is to take the testimony of both sides and 
then to send it over to the rate expert, who reads it and makes a report 



40 REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. 

thereon. The Commission usually follows the report, so that some of the 
railway companies have adopted the practice of introducing very little 
evidence at all, for the reason that they know that the Commission will 
investigate the subject anyway. Mr. Hogan has had some difficulty in 
securing schedules of rates of charges affecting Wisconsin business 
issued by foreign companies not doing business in Wisconsin and con- 
curred in by the AVisconsin lines. The statute requires only the filing 
of tariffs issued by railroads which are subject to the act. The Wis- 
consin carriers have to ask for an extra copy of such tariffs for the use 
of the Commission. Other states, such as Oklahoma, secure complete 
files of all tariffs affecting the state, including those issued by foreign 
companies. They force the local companies to secure the tariffs from 
the foreign companies. Mr. Hogan files separately the tariffs affecting 
state business and those showing nothing but interstate rates. The 
tariffs are indexed according to their nature, i. e., commodity, switching, 
distance, lumber, logs, etc. A card index system is used. 

XV. 

DEPARTMENT OF STATISTICS AND ACCOUNTS. 

Section 1797m-8 of the Public Utilities Law provides that every public 
utility shall keep and render to the Commission, in the manner pre- 
scribed by the Commission, uniform accounts of all business transacted. 
Section 1797m-9 provides that the Commission shall prescribe the form 
of all books, accounts, papers, etc. Section 1797m-13 provides for an 
annual balance sheet to show the information desired by the Commis- 
sion. Similar provisions are contained in the railroad act. 

The Commission, acting under these sections, has worked out a set of 
account forms and instructions for every public utility, and in some 
cases has worked out different forms of reports for the same kind of 
utility, depending upon the size and the extent thereof. These forms 
have been worked out with great thoroughness and care. A complete 
set was sent to the California Commission upon my request, and should 
be carefully consulted as soon as the Commission undertakes this same 
work. 

The Wisconsin forms provide for an arrangement of operating 
expense accounts in order of time, so as to show the cost as to each 
step in the process. The department is also engaged in a thorough class- 
ification of all expenses of utilities and other facts connected therewith 
by percentages, so as to arrive at unit information. Mr. Gruhl showed 
me several such tables worked out in great detail for some twelve gas 
companies. His department has also worked out tables of depreciation 
for each item of utility plants and also a composite curve showing depre- 
ciation for each utility. The Commission orders this percentage of 
operating revenues to be set aside for depreciation as prescribed by the 



REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. 41 

Public Utilities Act. This department has also done very thorough 
work in the matter of investigating passenger rates of the Milwaukee 
street car line system. This case will soon be decided and will be one 
of the most important utility decisions of the Commission. 

This department also carries on a large amount of general work of 
investigation with reference to the conduct of the business of the public 
utilities. 

Mr. Schneider is in charge of the railroad and express statistics and 
accounting. The Wisconsin Commission has adopted the form of 
accounts prescribed by the Interstate Commerce Commission, but itself 
prints the forms which are sent out to the railway companies. The 
same is true of express companies. 

XVI. 

EXPRESS INVESTIGATION. 

Commissioner Erickson told me that the Commission has been inves- 
tigating express rates for some eighteen months. It has secured from 
the express companies general data showing amount of business both 
incoming and outgoing from each station, with the terminal expendi- 
tures chargeable thereto. Several hearings have already been held. 
The Commission is also going into the question of the reasonableness 
of the rates of the railway companies in connection with this business. 
Mr. Erickson was of the opinion that Auditor Peabody's estimates in the 
Kindel case before the Interstate Commerce Commission are defective, 
because in his original segregation of freight from passenger expenses 
he loaded the passenger expenses too heavily. The Wisconsin Commis- 
sion has made a very thorough examination into this question of segre- 
gation of passenger from freight operating expenses. (See the Buell 
case, No. 32.) 

XVII. 

WRITING OF OPINIONS. 

Commissioner Erickson believes strongly in referring in detail to the 
facts in the opinions of the Commission. He believes that the habit of 
doing so will induce the commissioners to make more thorough investi- 
gations and also that the railroads and utilities will be less likely to 
appeal. This has been the experience of Wisconsin. The case of City 
of Beloit against the Beloit Gas, Light and Electric Railway Company, 
decided while I was in Madison, covers over thirty printed pages. 
Mr. Erickson also showed me an opinion which he had written in the 
matter of the City of Janesville water case, containing in detail by 
tables figures showing operation, revenue, classes of consumers, etc., 
all prepared by the statistical and accounting department. Mr. Erick- 
son realizes that some prominent commissioners prefer to write merely 



42 REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. 

the decision without going into the reasons, but believes strongly that 
the Wisconsin system is the better one. 

XVIII. 

COST BASIS. 

Commissioner Erickson is probably the leading exponent in the 
United States of the theory that rates should be based on the cost of 
the service, including interest on the value of the plant. He has pre- 
pared detailed tables showing how the cost of the service of each unit 
is secured. 

XIX. 
RELATION BETWEEN STATE UNIVERSITY AND COMMISSION. 

One of the most significant features of the work of the Railroad Com- 
mission is the close relation existing between the Commission and the 
State University. Professor Gilmore, of the law department, rendered 
assistance in the drafting of the original Railroad Commission Act. 
Professor Commons, of the Department of Economics, drew the public 
utilities act of 1907. This work was done without compensation and 
on the invitation of the legislative committees. As I have already 
stated, Professors Pence, Burgess, Mack, and others devote part of 
their time to their work in the University and part to the work of the 
Railroad Commission. A large number of the employees of the Com- 
mission are graduates of the State University. Considerable work of 
an experimental nature has been done by the students of the University. 
A number of the students of the University become interested in the 
work of the Commission by reason of the lectures that are given in the 
University by men such as the professors whom I have mentioned, and 
they are then upon graduation selected as employees of the Commission. 
This relation is one which has grown up naturally and has not resulted 
from any forwardness on the part of the University. 

This relation is of very great assistance both to the University and 
to the Commission. It helps the University, because quite a number 
of her instructors are enabled to do practical work and to bring to their 
classes the point of view of a practical man. The University is also 
very materially aided because the people of the state see that it is help- 
ing them to solve some of their most important practical problems, and 
for that reason give her generous support. The arrangement is also 
of very material assistance to the Commission. It gives to the Com- 
mission unprejudiced men of scholarliness and thoroughness and high 
ideals of public service. I am convinced that the Wisconsin Commission 
could not have attained its present high stage of efficiency if it had 
not been for its close association with the State University. 



REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. 43 



NEW YORK. 

SECOND DISTRICT. 

I. 
INTRODUCTION. 

The Public Service Commissions both of the First and Second Dis- 
tricts were created by statute of 1907. They took the place of the 
Board of Railroad Commissioners, the Commission of Gas and Elec- 
tricity, the Inspectors of Gas Meters and the Board of Rapid Transit 
Commissioners. The First District includes the counties of New York, 
Kings, Queens and Richmond ; the Second Districts, all other counties 
of the state. 

The Commission of the First District has jurisdiction over railroads 
and street railroads lying exclusively within the district ; street railroads 
lying partly within the district in so far as affects transportation of 
persons or property within the district ; the portions of other railroads 
lying within the district, as to physical features ; common carriers 
other than railroads, as to operations within the district; and gas and 
electric companies within the district. In addition to these powers, the 
Commission of the First District is the successor of the Board of Rapid 
Transit Commissioners in the matter of rapid transit within the City 
of New York and the management and control of the subways. The 
headquarters of this commission are in New York City. 

The Commission of the Second District has all jurisdiction not specif- 
ically conferred upon that of the First District and in addition thereto 
the legislature of 1910 conferred upon it jurisdiction over all the 
telephone and telegraph companies of the state, whether situated within 
the First or within the Second District. The headquarters of this 
commission are at Albany. 

The Public Utilities Act contains provisions for control over the issue 
of stocks and bonds and also of extensions and new construction (cer- 
tificates of public convenience and necessity). 

The present Public Service Commission Act was very strongly advo- 
cated by Governor Hughes and was one of his pet measures. 

II. 

ORGANIZATION AND OFFICE SYSTEM. 

1. The Commission. 

The commissioners are Frank W. Stevens, the chairman, an able 
lawyer, who handles a large part of the applications for approval of 
stock and bond issues; Martin S. Decker, formerly assistant secretary 
1 — RC 



44 REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. 

of the Interstate Commerce Commission, who handles a portion of the 
applications and is particularly concerned with traffic matters; James 
E. Sague, who was for many years a railroad operating man and who is 
particularly interested in the engineering and physical inspection work 
of the Commission; John B. Olmstead, a lawyer, who concerns himself 
with grade crossings and other matters, and Winfield A. Huppuch, 
recently appointed by Governor Dix. The Commission holds hearings 
nearly every day and is practically in continuous session. The chair- 
man seems to be a particularly hard working man. The commissioners 
are appointed by the governor for the term of five years, at a salary of 
$15,000.00 per year. The New York salaries are considerably higher 
than those paid in any other state. 

2. Employees. 

The work of the Commission is divided into the following divisions : 
a. Administrative. 
o. Light, heat and power. 

c. Statistics. 

d. Tariffs. 

e. Engineering and inspection. 
/. Telegraphs and telephones. 
g. Traffic inspection. 

The secretary receives a salary of $6,000.00 per year. The present 
employees in the administrative department are as follows : 

John S. Kennedy, secretary; one assistant secretary; one secretary 
for each commissioner; and twenty-three clerks and seventeen stenog- 
raphers. 

The Commission has a counsel, Ledyard P. Hale, who receives a salary 
of $10,000.00 per year. 

The division of light, heat and power has a chief of division, Henry 
C. Hazzard, who receives a salary of $4,000.00; one engineer at a salary 
of $5,000.00; six persons employed in the electrical department; and 
thirteen in the gas department. The division of statistics consists 
of a chief statistician, who receives a salary of $5,000.00 per year, and 
fifteen employees. The division of tariffs consists of a chief of division, 
at a salary of $4,000.00, and seven employees. The division of engineer- 
ing and inspection consists of a chief of division, at a salary of $4,000.00 
per year, an inspector and assistant inspectors of electric railways, an 
engineer and inspectors of grade crossings, a supervisor of equipment 
and two assistant supervisors, a boiler inspector, a mechanical engineer, 
four steam railway inspectors and several clerks and stenographers. 
The division of telegraphs and telephones has a chief, at a salary of 
$4,000.00, and an engineer and seven employees in the Albany office 
and an engineer and three employees in the New York City office. The 
division of traffic inspection consists of one inspector, whose station is 



REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. 45 

at Buffalo. Altogether, the commissioners and the employees of the 
commission number one hundred and thirty. The budget for the year 
1911-12, is $388,000, with an additional $350,000 as the state's share of 
the cost of elimination of grade crossings. 

3. Office System. 

All communications both to and from the Commission are handled 
by the secretary. Each morning he goes through the mail and assigns 
the correspondence to the respective divisions. The files in the general 
office are arranged in three main groups (1) formal matters; (2) in- 
formal matters; (3) general correspondence. Both formal and infor- 
mal matters are numbered. The filing clerk keeps in her desk a book 
for informal matters and assigns to each matter, as it comes in, a num- 
ber. A decimal filing system has been carefully worked out for the 
general correspondence files. The office has one large general index. 
Formal matters are indexed by name of complainant (on a white card), 
name of the respondent (salmon), name of the locality (blue), and the 
names of all persons who are connected in any way with the case, 
including everybody who writes in about it and all lawyers who appear, 
except the regularly retained corporation lawyers. In this way an 
index is given to every possible clue. Informal matters are indexed in 
the same way on the same colored cards. However, these matters have 
two letters "cc" i. e., "correspondence complaints," in the upper right 
hand corner. All applications also appear in this same index on green 
cards. General correspondence matters are indexed by names of the 
persons. Separate indexes are also kept for the subject matter of 
all complaints both formal and informal. I consider the filing system 
of this office to be the best which I observed in any of the commissions, 
and secured for the information of the California Commission, a copy of 
the decimal system key. 

III. 

DIVISION OF HEAT, LIGHT AND POWER. 

This division has charge of the inspection of all gas and electric 
plants within the district and the testing of gas meters. Its chief is 
Henry C. Hazzard. The Commission has prescribed standards of purity 
and of illuminating power of gas, and has four men in the field con- 
stantly inspecting gas plants to see whether these standards are being* 
complied with. Examinations are also made of the safety of construc- 
tion and operation of high tension power lines. About 80 per cent of 
the gas furnished is used for heating. Consequently, in Mr. Hazzard 's 
judgment, a calorific test is better than a lighting (candle power) test. 
Several conferences have been held between the Commission and the 
gas companies for the purpose of having the companies adopt a calorific 
test. The matter is now in process of adjustment. Every gas meter 



46 REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. 

is inspected before being installed; this work necessitates the employ- 
ment by the Commission of seven gas meter inspectors. Electric meters 
can not be so inspected before installation, for the reason that because 
of their delicacy they vary materially between the time of inspection 
and the time of installation. After the installation of the gas meters, 
they are not inspected by the Commission except upon complaint of a 
user of gas. The corporation, however, is directed to keep meter test- 
ing apparatus, which is inspected from time to time by the Commis- 
sion's inspectors. In Wisconsin, the Commission does not in the first 
instance test every gas meter, but forces the company to do so within 
thirty days after installation, and once every two years thereafter. 
The New York Commission also forces the electric companies to pur- 
chase machines for testing electric meters and to make tests at regular 
intervals. 

IV. 

DIVISION OF STATISTICS. 

This division is in charge of Mr. Wishart, who was formerly with 
the Interstate Commerce Commission. The chief work of the depart- 
ment is to prescribe forms of accounts and reports, to analyze the 
reports, and to furnish statistical data when required by the Commis- 
sion in cases of stock and bond issues and other cases. With reference 
to steam railroads, the department uses the Interstate Commerce Com- 
mission's forms as models, but prints its own blank forms, with paper 
covers for convenience in filing. As to express companies, forms pre- 
pared by the Interstate Commerce Commission are used. As to gas and 
electric companies and street railroads, the department has prepared 
its own forms for three classes of companies in each case, being those 
which are large, medium and small. The department is now preparing 
forms for telephone and telegraph companies. Copies of all these 
forms have been sent to the California Commission at my request. 

The department has two traveling auditors to examine the books of 
public utility corporations, to make reports on special cases, and to assist 
the smaller companies in keeping their books. 

V. 

DIVISION OF TARIFFS. 

This division is in charge of Mr. Griggs, who has devised the most 
thorough tariff filing index system which I observed on my tour. The 
Commission has issued its Circular No. 55, being regulations prescrib- 
ing the form and governing the construction and filing of freight tariffs 
and classifications and passenger fare schedules of railroad companies. 
It has also prepared a form of schedule for heat, light and power com- 
panies, but this form has not as yet been adopted. Mr. Griggs is now 



REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. 47 

working on a form of schedule for telephone and telegraph companies. 
None of the public utilities have as yet filed any tariffs. This division 
issues a weekly tariff bulletin showing all changes in transportation 
rates and fares for the preceding week. 

The largest part of the work of this division consists in keeping up 
the very thorough card index system which Mr. Griggs has devised. 
He has one index to tariffs by railroads, showing passenger, class 
freight and other tariffs, except commodity tariffs, and a separate 
index for all the commodity tariffs. The commodity index runs alpha- 
betically from a to z, each commodity being separately indexed. When- 
ever a tariff schedule comes into the office and is ready for filing, every 
commodity shown therein is passed on to the index cards. For instance, 
under the head of ' ' apples ' ' will be found a reference to every schedule 
which shows a rate on apples. In this way, it is possible to tell at a 
moment's notice every rate on apples in effect on any railroad within 
the State of New York for the last four years. In some cases, one single 
schedule necessitates several thousand notations on the index cards. 

VI. 

DIVISION OF TRAFFIC. 

This division consists of one inspector with headquarters in Buffalo, 
where the steam railroad traffic is more congested than in any other 
city in the state. It is the duty of this inspector to study how to relieve 
this congestion and to expedite traffic. 

VII. 

DIVISION OF ENGINEERING AND INSPECTION. 

The steam railroad inspectors go over all of the steam railroads of 
the state each year and inspect the same as to their physical features, 
such as the adequacy of stations and yard facilities and the condition of 
the track. One supervisor and two assistants do similar work with refer- 
ence to railroad equipment. The inspector of electric railroads has 
charge of the physical features of the electric railroads of the second 
district and examines into all complaints affecting them. The division 
also has in its employment a locomotive boiler inspector and an engineer 
and an inspector of grade crossings. 

The railroads furnish to the Commission, at short intervals, reports 
as to each passenger train delay. The engineering and inspection 
division thereupon analyzes the returns and suggests improvements. 

VIII. 

DIVISION OF TELEGRAPHS AND TELEPHONES. 

The statute of 1910 provides that the Commission of the Second Dis- 
trict shall have jurisdiction over all telegraph companies and over all 



48 REPORT OF RAILROAD AND PUBLIC SERVICE COMMISSIONS. 

telephone companies having a property value of $10,000.00 or over. 
Out of eleven hundred telephone companies in the state, only one hun- 
dred and thirty-five report that they have the required amount of prop- 
erty. The Commission is having considerable trouble with telephone 
companies by reason of discriminations in charges arising from existing 
contracts. The Commission has called for a statement from the tele- 
phone companies as to every discrimination of this kind, and may take 
action to order the cancellation of such contracts. No investigation has 
been made into the value of the plants of these companies and no rates 
have been fixed for any of them. 

IX. 

STOCKS AN.D BONDS. 

No issue of stocks, bonds or other securities payable in more than 
twelve months, of any of the companies subject to the Public Utilities 
Act is valid without a certificate of authority from the Commission. A 
very large part of the Commission's work consists in hearings on these 
applications. Under the rules of procedure prescribed by the Commis- 
sion, a petition is filed setting forth the amount and details of the 
proposed issue; the purposes for which the proceeds are to be used; 
a general description of property, facilities or service to be acquired or 
obligations to be refunded ; the financial condition of the applicant ; the 
cost of construction of the proposed improvements; and the contract 
for the sale of the stocks or bonds, or an affidavit as to the amount prob- 
ably to be realized. The Commission, generally acting through Chair- 
man Stevens or Commissioner Decker, makes a thorough examination 
into the application. If there is any question about the matter, the 
accountants and sometimes the engineer of the Commission are sent out 
to examine the plant and to report. The Texas law as to stock and 
bond issues of railroads provides that no registration of bonds shall be 
authorized without a precedent valuation of the plant. The New York 
Commission generally does not seem to require a valuation as a condi- 
tion precedent to the issuance of the certificate. 

The order of the Commission generally prescribes the purpose for 
which the money is to be used, directs the applicant to report under oath 
the sales of obligations issued and the terms and conditions and amounts 
realized and to make a verified report at least once every six months 
showing in detail the use and application by the applicant of the 
moneys so realized. No form for applications nor for reports has been 
prepared. 

The Commission lays very particular stress on this part of its work. 
One very important question which has arisen is as to whether or not 
the Commission has the power, under the statute, to impose conditions 
on the grant of its permission. Recently the Commission made an order 



REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. 49 

permitting an electric railway company, which was very much over- 
capitalized, to issue $500,000.00 worth of bonds to make improvements, 
on condition that the company strike off $100,000.00 of its capital 
stock. The Commission's order in this matter is now in the courts. 
It is important to have the statute provide that the Commission shall 
have the power to impose conditions, otherwise it is powerless to force 
the writing off of any watered stock or to force compliance with any 
other requirement which, in the judgment of the Commission, may be 
necessary to protect the company and the public. 

X. 

CERTIFICATE OF PUBLIC CONVENIENCE AND NECESSITY. 

The railroad law and the public service commission law both provide 
that the corporations therein specified shall not begin the construction 
of a new plant or an extension of an existing one or exercise any new 
franchise or right without having first secured from the Commission 
a certificate that public convenience and necessity require the construc- 
tion or the extension or the exercise of the franchise or right. 

The applicant must file a petition showing all the material facts 
connected with the enterprise, including the manner in which it is 
proposed to finance the construction or extension. The Commission 
then gives notice to each municipality affected and to every other public 
service corporation of the same kind likely to be concerned and to every 
person who has corresponded in the matter, and directs the applicant 
to publish notice in a paper designated by the Commission. The chief 
question, at the hearing, is generally as to whether or not the public 
convenience or necessity requires the construction of a new plant or the 
extension of an existing one. The hearings are often contested between 
the existing company and the new one which is seeking to enter the 
field. Where the application is submitted by a proposed competitor of 
an existing utility and the utility already in the field is giving satis- 
factory service, the Commission generally denies the application. If 
the existing company is giving poor service, the Commission often holds 
the application of the new company as a club over the head of the 
existing company in order to force better service. The commissioners 
told me that they considered this provision an extremely important 
one. Cut-throat competition between such companies usually results in 
deterioration of the equipment and the service, and when the inevitable 
consolidation takes place, the public must pay interest on both invest- 
ments. 

The Commission recently refused permission to a proposed new 
railroad, the Buffalo, Rochester and Eastern to build from Buffalo 
easterly towards Boston, a proposition involving a contemplated outlay 
of more than one hundred million dollars. The reason for the refusal 



50 REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. 

was that the traffic in the territory affected was already being ade- 
quately handled by the existing railroads and that there was no reason 
for the investment of so much additional capital on which the public 
would have to pay interest. A rehearing was granted in the case, but 
a decision affirming the former decision was being prepared when I 
was with the Commission, although a large number of legislators had 
signed a petition to the Commission "to decide the case promptly and 
in favor of the applicant" and though there was considerable public 
agitation in favor of the project. 

XI. 

PHYSICAL VALUATION. 

This Commission has done practically no work in ascertaining the 
value of the properties of the corporations subject to its jurisdiction. 
The only work which has been done has consisted in the valuation of a 
few of the smaller utilities in complaints before the Commission con- 
cerning their rates. In the New York telephone case, recently decided, 
concerning ten cent tolls between New York City and adjoining cities, 
the Commission reduced the toll to five cents. The Commission struck 
out an item of thirty million dollars for special franchise values, and 
then took the telephone company's own figures as to value. One valua- 
tion was made during the last four years in the matter of a gas rate. One 
of the commissioners told me that there was little occasion for investi- 
gating railroad rates for the reason that they were stable and that the 
railroads were entitled, if anything, to a higher rate than those in 
effect. 

Chairman Stevens, speaking for himself, is not impressed by the 
physical valuation theory of some of the western states. He thinks such 
valuations unsatisfactory for three reasons : 

1. Because the principles upon which they are based have not as 
yet been clearly defined by the courts. 

2. Because the ascertainment of the valuation is largely guess work. 

3. Because he does not know what to do with the valuation after he 
gets it. 

As bearing on the second point, he referred to a Buffalo gas or 
electric case, in which he had been taking testimony for some two weeks 
and in which the experts varied two hundred per cent in their valua- 
tions. He is of the opinion that this entire question of physical valua- 
tion is largely guess work, particularly with reference to depreciation. 
In his judgment, the original cost of the plant (not the cost of repro- 
duction) is a material element, but he points out that in New York 
State it is absolutely impossible to ascertain the original cost of con- 
struction of the railroad properties. He stated also that the application 
of the cost of reproduction theory would very materially raise the rail- 
road rates in the State of New York. 



REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. 51 

XII. 
RATE FIXING. 

As I have already indicated, the New York Commission has done 
practically no work in the way of rate fixing. In 1907 the legislature 
passed a two cent maximum fare passenger law, but Governor Hughes 
vetoed the bill on the ground that there had been no investigation suffi- 
cient to justify the reduction. The Public Service Commission did not 
at that time have the power to investigate rates on its own initiative. 
Xo investigation has ever been made. Mr. Stevens' view of the matter 
is that the service should first be perfected, and that when this has been 
done, the Commission can take up the question as to whether or not the 
company is still receiving excessive compensation. The Commission has 
never made any investigation of express rates. 

XIII 

RELATION WITH NEWSPAPERS. 

The Commission is very particular to see to it that adequate publicity 
is given to its proceedings. Each day the assistant secretary prepares 
a statement of the matters which have come before the Commission 
during the day, including decisions and new applications for the 
approval of stock or bond issues and for permission to construct new 
plants or extensions of existing plants. These statements are secured 
each day by the newspaper representatives and are published in a large 
number of the papers in the state. While I was traveling in other 
states, both in the east and south, I read, from time to time, in the local 
papers, items which had been telegraphed over the wires of the Asso- 
ciated Press from the Commission of the Second District of New York, 
showing the effectiveness of the newspaper work of the Commission. 

XIV. 

RELATION BETWEEN COMMISSION AND CORPORATIONS. 

This Commission, like that of Wisconsin, seems to be on friendly 
terms with the corporations subject to its jurisdiction. I was told that 
there. are at present only three or four cases in the courts arising out 
of orders of the Commission, these being cases raising questions con- 
cerning the jurisdiction of the Commission in certain matters, such as 
the power to impose conditions upon the issue of stocks and bonds. 

This condition of affairs, existing as it does with reference to the 
work of two of the most thorough and capable of the Commissions of 
the country, would seem to justify the conclusion that where the work 
of Commissions is done with considerable care and thoroughness, the 
probability of appeal from their orders is slight. . The result has been 



52 REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. 

that the entire legal work of the Commission is handled by its counsel, 
personally, without any assistants. It is interesting in this connection 
to note that the legal department of the Commission of the First District 
in New York consists of a Counsel and some four of five assistants, who 
are kept constantly busy with the Commission's litigation. It is only 
fair, however, to say that a large portion of the litigation of the Com- 
mission of the First District is probably due to a mean spirit on the part 
of some of the corporations, and to the fact that former watering of 
stock and excessive issues of bonds have placed the corporations now 
in such a position that they can not meet the interest on their bonds and 
declare dividends, and consequently are not in a mood to comply with 
any order requiring an additional outlay of money. 

XV. 

ELIMINATION OF GRADE CROSSINGS. 

The Kailroad Commission Law of 1907 contains elaborate provisions 
concerning the power of the Commission with reference to supervision 
of crossings, and particularly the abolition of grade crossings. In the 
years 1907 to 1910 the State of New York paid as its share in the elim- 
ination of grade crossings, the sum of $1,270,831.49. The final deter- 
mination by the Commission of a large number of grade crossing cases 
has been held up because of the failure of the legislature of 1909 to 
make any appropriation for the further elimination of such crossings. 
The legislature of 1911, however, appropriated $350,000 for this work. 
In the three years from 1907 to 1910, inclusive, 226 persons were killed 
and 400 injured at highway crossings in New York State outside the 
limits of New York City. The Commission has recommended that a 
statute be passed requiring the railway companies to remove, at their 
own expense, each year one grade crossing for every three hundred 
miles of railroad. The problem is becoming more serious every day. 

XVI. 

DISCOUNTS AND EXPENSES. 

The Commission has taken the position that discounts and expenses 
incurred in connection with the original sale of securities are not to be 
regarded as capital on which interest must be paid indefinitely, but 
rather that they are amounts which must be apportioned annually over 
the period of life of the security. In other words, these sums should 
be paid out of income and not regarded as capital account. This mat- 
ter is of importance, in view of the fact that the Washington Commis- 
sion, in making its valuations, permitted the railroads to capitalize 
these items. 



REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. 53 

XVII. 

AMORTIZATION FUND. 

The Commission insists that the companies shall set aside each year 
out of their income an amortization fund. While it would naturally 
be expected that the corporations would be glad to do so, the fact is that 
many of their managers, desiring to declare as large a dividend as 
possible, have been extremely dilatory about setting aside this fund. 
The Commission has prescribed no percentage of depreciation to be set 
aside, but has left the responsibility for the present with the corpora- 
tions themselves. 



54 REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. 

MASSACHUSETTS. 

A. 

RAILROAD COMMISSION. 

I. 

INTRODUCTION. 

The Board of Railroad Commissioners of Massachusetts was appar- 
ently created by act of 1864, although its active work seems to date from 
the act of 1869. The Board has limited jurisdiction over all steam, 
electric, and street railroads, express companies and "steamship com- 
panies serving as common carriers throughout the year between two or 
more ports" of the commonwealth. Jurisdiction over gas and electric 
light companies is exercised by the Gas and Electric Light Commis- 
sioners. Jurisdiction over telephone and telegraph companies is exer- 
cised by the Board of Highway Commissioners. 

The General Court (legislature) of Massachusetts meets annually and 
each year passes quite a number of amendments to the railroad commis- 
sion act, and resolves (resolutions) calling upon the Board to investigate 
special problems and to report thereon. 

II. 

ORGANIZATION AND OFFICE SYSTEM. 

1. The Commission. 

The commissioners are Walter P. Hall, Chairman; Geo. W. Bishop 
and Clinton White. Mr. Hall is a lawyer. All the chairmen from 
Chas. Francis Adams down have been lawyers. Mr. Bishop was for- 
merly road master of the Fitchburg railroad and is the practical rail- 
road man of the Commission. Mr. White has served for ten years, is a 
banker and financier and handles the stock and bond applications. The 
commissioners give practically all their time to the duties of their office. 
They spend considerable time in traveling both in the United States 
and abroad for the purpose of familiarizing themselves with traffic con- 
ditions and with the most approved methods of railroad operation. 

The railroad commissioners are appointed by the governor and serve 
for three years. By amendment of 1906, the salary of the chairman 
was raised to $6,000.00 and that of the other two commissioners to 
$5,000.00 

2. Employees. 

The employees of the Board consist of a secretary, an assistant sec- 
retary, an auditor, an assistant auditor, a consulting engineer, ten 
inspectors and four stenographers. The secretary, Chas. E. Mann, is 



REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. 55 

appointed by the governor, at a salary of $3,000.00 per year and has 
served since 1893. The only other secretary whom the Commission 
has had served from 1869 to 1893. The function of the accountant 
and his assistant is to edit, check over, analyze and digest the reports 
submitted each year by the railroad companies. The consulting bridge 
engineer, Professor George F. Swain of the Harvard Scientific School, 
receives a salary of $3,000.00. The inspectors are paid $2,000.00 

The total expense for salaries for the year 1910 was $42,600.00. The 
sums of money appropriated annually by the General Court for salaries 
and expenses of the board, its clerks and employees, are apportioned 
by the tax commissioner among the corporations subject to the juris- 
diction of board, in proportion to gross earnings, and are collected in 
the same manner as taxes upon such corporations, so that the entire 
expense of maintaining the board is ultimately paid by the corporations 
which are subject to its jurisdiction. 

3. Office System. 

The office system is not elaborate, for the reason that the Board 
does not handle a very large amount of business. All formal matters 
are numbered and a brief history thereof written in an index book. I 
glanced through this book and noted that practically all matters noted 
therein are petitions by the railway companies for approval of locations, 
approval of stock and bond issues, approval of right to exercise fran- 
chises, etc. On a number of these pages I noticed only a single case 
of a complaint by the third party asking a hearing. Matters which 
are referred to the Board by the General Court for investigation are 
also noted as formal matters. An index is kept of all correspondence 
matters. A book containing an entry of every letter received and sent 
out in each such matter is also kept. The secretary keeps a card 
index of all applications by railroads. He keeps letterpress books for 
his correspondence and also one for "Orders of Notice," these being 
notices to corporations that matters have been set for certain dates. 
The blank forms of these orders are printed in copying ink so that the 
entire notice appears in the letterpress book. 

The minutes are kept in a loose leaf book with typewritten inserts. 
On the theory that the Board is in session all the time, no mention is 
made of adjournments to any particular time. The minute books show 
proceedings on an average of about every other day. 

III. 

RATE FIXING. 

Up to 1911, the Board had, with reference to rates, recommendatory 
powers only. For that reason, the Board was referred to by a committee 
of the National Association of Railroad Commissioners as a weak board. 
It is evident that this charge rankles. The commissioners explained 



56 REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. 

that although they did not have the power to fix a rate, they accom- 
plished practically the same purpose through their powers of recom- 
mendation, for the reason that if their recommendations were not 
complied with, the General Court would pass a statute in the matter, 
lowering the rate. I have been informed within the last few days, 
however, that the General Court before adjourning this spring finally 
gave to the Commission the power to fix rates. 

In response to a resolve of the General Court, the Board has made 
a thorough investigation into the commutation rates within fifteen miles 
of Boston and has secured the adoption by the railroads of twelve day 
tickets and has also induced them to smooth out all inequalities in rates 
in concentric spheres of territory radiating out from Boston. Under 
a resolve of 1911, the Board must now investigate commutation rates 
further out than fifteen miles. Commissioner White told me that 
there is a considerable agitation for the reduction of commutation 
fares further out, particularly on electric roads, and that the promise 
of a reduction in such fares is frequently the principal plank in the 
platform of a candidate for the General Court. 

IV. 

FACILITIES, EQUIPMENT, SAFETY DEVICES. 

With reference to repairs, additions to rolling stock, additions to or 
alterations in stations or waiting rooms, and manner of operation, 
the powers of the Board are recommendatory only. Certain statutes, 
however, have given to the Board the power to compel the installation 
of interlocking plants, signal plants at crossings and safety devices. In 
general, the Board has mandatory power as to matters affecting the 
safety of passengers and merely recommendatory power in the general 
field of service, safety and equipment. 

V. 

POWERS OF BOARD AS TO CHARTERS, FINANCES AND CONSTRUCTION. 

The most important powers of the Board are those which are exer- 
cised in the granting of certificates as preliminary to the incorporation 
of railroad companies and their construction and financial operations. 

1. Incorporation. 

After the incorporators of a proposed railroad company have signed 
articles of intended association and have advertised the same, they must 
secure from the Board a certificate that public convenience and neces- 
sity require the construction of a railroad as proposed in the articles 
of agreement. The Board has power to refuse the issue of such a cer- 
tificate. The Board in its order sets a date for the hearing of the matter 
and usually directs publication in at least one newspaper in each city 
or town affected, and also directs a copy of the publication to be 



REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. 57 

served on the mayor of each such city or town. Railroads which might 
be affected are also notified. The general policy of the Board is to grant 
such certificates wherever they affect new territory but to refuse them 
where the territory is already adequately served. In case the existing 
service is inadequate, and the existing company is slow to improve it, 
Commissioners Hall and White differ as to the policy to be pursued. 
Chairman Hall would grant the application on the ground that 
competition is a good thing. Commissioner White would hold the 
matter in abeyance, using it as a club over the head of the existing 
corporation to compel improved service, and ultimately granting it only 
if the existing corporation does not come up to scratch. Chairman 
Hall fears that this policy will ultimately result in the refusal of any 
new corporation to apply, and consequently a tendency on the part of 
the existing corporation not to keep up its service. 

The Board last year refused several applications for new railroads, 
among them the applicaton of the Boston, Lowell and Lawrence Elec- 
tric Railroad Company, in which case Chairman Hall dissented. The 
Board last year granted certificates to four railroads, refused them to 
two (Hall dissenting) and postponed one matter (Hall dissenting). 

If the Board issues the certificate of public convenience and necessity, 
the proposed corporation must then agree as to its route with the board 
of aldermen of all the cities and towns through which the railroad is 
to run, must pay into its treasury ten per cent of the par value of the 
stock subscribed, and must then secure from the Board a certificate of 
compliance with . the provisions preliminary to incorporation. Then, 
and only then, can the incorporators secure from the secretary of the 
commonwealth their certificate of incorporation. 

As far as I was able to ascertain, Massachusetts is the only state 
which makes the issuance of a certificate of public convenience a condi- 
tion precedent to the issuance of articles of incorporation. In Wisconsin 
and New York, the proposed company can incorporate and secure its 
articles, subject to the possibility that the Railroad Commission may 
thereafter refuse permission to build the railroad for which they are 
incorporated. The Massachusetts plan is more logical in that it goes 
to the root of the matter and prevents the initial incorporation of such 
company, unless the Board of Railroad Commissioners decides that 
public convenience and necessity require the construction of a railroad 
along the route specified in the articles of incorporation. 

2. Construction. 

After the certificate of incorporation has issued and the railroad 
has been constructed, it can not be operated until the Board has issued 
its certificate that all laws regarding its construction have been com- 
plied with and that it appears to be in a safe condition for operation. 
If the railroad thereafter wishes to extend its line or to add a new piece 



58 REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. 

of track, it must secure from the Board an approval as to location. 
"With reference to locations, the Board has power to refuse the certificate 
only on the ground of menace to public safety. The right of the 
railroad to build along a certain route has already been settled by the 
issuance of the certificate of public convenience and necessity. The 
question arising under an application for the approval of a location is 
simply the determination of a specific location in that general route. 

If the railroad thereafter wishes to lease the franchise of another 
railroad corporation, or to consolidate with such corporation, or to enter 
into a contract with it under which the corporation shall perform all 
the transportation upon the road of the other, it must first secure a 
certificate of authorization from the Board of Railroad Commissioners. 

3. Finances. 

If a railroad wishes to issue stocks, bonds, notes or other evidences 
of indebtedness, payable more than twelve months from the date of issue, 
it must first secure a certificate from the Board of Railroad Commission- 
ers. No form of petition has been prescribed by the Board. The Board 
generally directs notice to be published in one or more newspapers. 
Cases of contest in matters of this kind are extremely rare. There 
is generally an appearance made by the attorney and the treasurer 
or auditor of the applicant. The Board does not seem to make the 
careful examination into the value of the applicant's property which is 
made in New York and Texas, but seems to rely largely upon the 
knowledge of finance possessed by Commissioner White. 

The statute does not specify the purpose for which such issues can 
be made and in this respect differs from the statutes of New York and 
Wisconsin. Commissioner White told me that the present Board has 
never authorized an issue for any purpose other than the purchase of 
property except under one statute which authorized the issue for 
working capital. Mr. White thinks it wiser to have the statute give 
the board general powers in this respect instead of tying the hands of 
the commissioners by detailed statutory provisions. 

I had some little conversation with Commissioners Hall and White 
with reference to the policy of the commissions in New York in forcing 
an applicant at times to write off a designated amount of capital stock 
as a condition precedent to the approval of a new issue of stocks or bonds 
so as gradually to squeeze out the water. Chairman Hall is strongly 
of the opinion that the Commission should not go into these matters, 
but should start with a clean slate and should consider only whether 
the amount of the issue applied for is too large for the purpose specified 
and whether the purpose specified is legitimate. He referred to the 
converse case in which the corporate plant is worth more than its 
stocks and bonds and asked why it would not be permissible in such a 
case, if the theory referred to is correct, to permit a new issue of 



REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. 59 

stocks or bonds without putting in any new money into the plant. He 
does not see how the New York Commissions can consistently refuse to 
grant such permission in the latter case. I found no crystallization of 
opinion among the commissions on this point. 

These provisions with reference to incorporation, construction, and 
finances give to the Board immense powers, and the larger portion of its 
work is performed under them. The stock and bond law has been in 
effect since 1875, and the public convenience and necessity law since 
1882. Wisconsin, New York and other states which have recently 
adopted similar provisons, all apparently took them from Massachusetts. 

VI. 

GRADE CROSSINGS. 

The matter of alteration or abolition of grade crossings is an extremely 
important one in Massachusetts. In 1910, the Commission approved 
plans for the abolition of crossings at grade in eight towns and also 
approved two agreements for alterations in grade crossings. In cases 
of abolition, the railway companies pay 65 per cent of the expense, and 
the state and the city or town 35 per cent. $34,000,000 has already been 
expended in Massachusetts by the railroad and public authorities in the 
abolition of grade crossings. In 1910, the commonwealth voted an addi- 
tional $500,000 for this purpose. Both Chairman Hall and Commis- 
sioner White urged strongly that California take steps in this matter at 
once, before the expense becomes enormous, as is the case in all the east- 
ern states. 

VII. 

COURT PROCEDURE. 

The board has had almost no cases in court. This is partly due to the 
fact that a large portion of the work of the Board has been recommend- 
atory and that none of it has involved the fixing of a rate. The remedy 
adopted, whenever any was used, has been certiorari. The board has 
been reversed only four times in its history. Two of these cases date 
back to the days of Charles Francis Adams. 

VIII. 

PREPARING ANNUAL REPORT. 

Secretary Mann showed me his method of preparing his annual report. 
During the year, the usual main heads in a report are cut out and all 
orders and other matters pertaining thereto are pasted under these 
heads in chronological order, ready for printing. The index heads are 
also cut out and pasted on cards, and new cards are prepared by one of 
the clerks at odd times as new headings become necessary. All orders, 
in so far as possible, are held off after December 15th, and the Chair- 
man's report must be in by that day. Proof has been read in the mean 
5 — -RC 



60 REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. 

time, from time to time, by the secretary, with the result that the signed 
report is on the desk of the legislators by the first Wednesday in January. 
The statistical reports are printed in a separate volume. By planning 
the work ahead during the year, it is comparatively easy to have the 
report prepared in time. 

IX. 

LIBRARY. 

Secretary Mann has spent considerable time in securing a library, 
particularly in so far as the railroads of Massachusetts are concerned. 
He has collected a large number of pamphlets dealing with the early 
history of these railroads, and practically all the books that have been 
published affecting in any way the railroads of the commonwealth. He 
showed me some extremely interesting pamphlets going back to the very 
first railroad construction in Massachusetts, and others dealing with the 
early history and construction of the Hoosac Tunnel. He has also 
secured from the railroads and from booksellers and private libraries 
almost complete sets of the stockholders' reports of the railroad com- 
panies — a matter of considerable importance to an effective railroad 
commission. He has also prepared a historical card index of all the 
railroads of Massachusetts, showing in detail every step in their his- 
tory, beginning with the incorporation and continuing through every 
organization, reorganization and consolidation, and every statute and 
order of the Board referring in any way to these matters and to the 
issuing of stocks and bonds. I shall go into this latter matter a little 
more fully in connection with the work of the Public Service Commis- 
sion of the First District of New York. These two commissions seem to 
be the only ones which have realized fully the immense value of having 
in the office of the state board detailed and accurate information con- 
cerning the entire history of the railroad companies of the state. 

X. 

INSPECTORS. 

Up to 1911, the legislature provided for seven inspectors. The state 
was divided into six districts, with one inspector in charge of each dis- 
trict. The duty of each inspector is to look into the service, equipment, 
and facilities of the steam and street railroads within his district and 
to investigate complaints affecting these matters. The seventh inspector 
is a locomotive inspector and spends his time riding on locomotives. 
Commissioner "White is particularly proud of these inspectors. All of 
them are practical railroad men. Each Monday they report to Com- 
missioner Bishop at a general conference. There is sufficient diversity 
in their qualifications so that one or the other is qualified to handle 
practically any matter which may come up, however technical it may 
be, involving a question of service, facilities, or equipment. The legis- 
lature of 1911 increased the number of the inspectors from seven to ten.. 



REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. 61 

B. 
GAS AND ELECTRIC COMMISSIONERS. 

I. 

INTRODUCTION. 

Since 1885, jurisdiction over all the gas and electric light companies 
of the state has been exercised by the Board of Gas and Electric Light 
Commissioners. 

The board has the following general powers : 

1. To supervise all companies manufacturing and selling gas or elec- 
tricity for light or heat. 

2. To authorize a gas light company to engage in the business of fur- 
nishing electricity for heat and power. 

3. To sit as court of appeal on decisions of boards of aldermen or 
selectmen on the petition of a second company to lay gas pipes in the 
streets. 

4. To exercise similar power as to electric light companies. 

5. To prescribe forms of accounts. 

6. To compel the rendition of annual returns. 

7. To compel a company to supply gas or electricity upon the petition 
of a consumer. 

8. To fix the quality and price of gas or electricity upon petition of 
the mayor of a town or the board of selectmen or twenty consumers. 

9. To fix the price of gas or electricity upon petition of the company. 

10. To test electric meters on petition of a consumer. 

11. To investigate accidents. 

12. To test and seal all gas meters before installation. 

13. To test all gas for candle power and for sulphur, ammonia, and 
other impurities. 

14. To enforce provisions of a recent statute as to smoke in Boston, 
Brookline, Cambridge, and other cities. 

15. To regulate all issues of stocks and bonds and all consolidations 
of gas and electrical companies. 

II. 

ORGANIZATION AND OFFICE SYSTEM. 

The Commission consists of Forrest E. Barker, chairman, Morris 
Schaff, and Alonzo R. Weed. Chairman Barker is a lawyer and has 
served on the Board since the seventies. Mr. Weed is an engineer, a 
graduate of West Point and has just been reappointed for the ninth or 
tenth time. The commissioners are appointed by the governor at a 
salary of $5,000.00 for the chairman and $4,500.00 for the other two 
commissioners. The commissioners devote their entire time to the 



62 REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. 

duties of the office and seem to perform a very large amount of work. 
Their report is among the most thorough and comprehensive of any of 
the reports published by state commissions. 

2. Employees. 

The employees consist of a clerk appointed by the governor, one chief 
and two assistant gas inspectors, four inspectors or testers of meters, one 
electrical inspector and three stenographers. All the salaries and 
expenses are paid by the gas and electric companies in proportion to 
their gross receipts. 

3. Office System. 

Stenographic reports are taken of all hearings and the original notes 
are firmly bound in black leather volumes which are then filed away in 
the vault. This is an excellent idea, apparently original with this 
board and worthy of emulation. The annual reports of the corporations 
are neatly bound when returned, those of private gas companies in one 
color, those of private electric companies in another and those of muni- 
cipally owned plants in still another color. 

III. 

RATE FIXING. 

Chairman Barker pointed out that the Board does not have power 
on its own initiative to fix rates. He said that his Board had discour- 
aged legislation to that end, for the reason that the public would then be 
inclined to lose their initiative in the matter of filing complaints and for 
the reason that the Board would then be subject to severe criticism for 
failure to institute investigations in certain cases. He pointed out, 
however, that when a reduction in rates is petitioned for by the Mayor 
or the Board of Selectmen or twenty consumers, the Board has the power 
to fix the rate. On other occasions the Board at times compels the 
reduction of a rate as a condition to the approval of a stock or bond 

issue. 

IV. 

STOCKS, BONDS, CONSOLIDATION. 

There is hardly ever any opposition in cases of this kind. The Board 
hears the evidence presented and then itself goes carefully into the 
value of the plant and the financial condition of the company before 
issuing its certificate. In the year 1910, twenty-nine applications for 
approval of issue of stocks and bonds were decided. The amount of 
security asked for was $3,803,400, and the amount approved $2,969,600. 
The Board at times imposes conditions to its permission; for instance, 
that a certain amount of the capital stock should be written off, or a 
dividend reduced or an assessment made to bring up the capital account. 
The policy of this Board, as well as the experience of the New York 



REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. 63 

Commissions of both districts, shows the necessity of giving to the 
Commission the power to impose conditions on the approval of stock 
and bond issues. 

The Massachusetts Board has the power, on granting applications for 
issues of bonds, and it is its duty, to determine the price for which 
the bonds shall be sold. This is an unpleasant duty and nobody is 
ever satisfied with the decision of the Board on this question. 

V. 

NEW GAS OR ELECTRIC PLANTS. 

Sections 25 and 26 of the statute provide that no gas or electric 
company shall use the streets of a city or town without the consent of 
the mayor or aldermen or selectmen granted after notice by publication 
and a formal hearing. Section 27 provides that any person aggrieved 
by the decision may within thirty days appeal to the board of gas and 
electric light commissioners, whose decision shall be final. Chairman 
Baker told me that appeals were taken in practically all cases and that 
in only one or two cases had the Board permitted the second utility 
to come into the field. While his Board has not put itself on record 
as formulating any definite policy in this matter, these results speak 
for themselves. I referred to objections which I had heard concerning 
this policy as applied to railroads, whereupon Chairman Barker answered 
that there is no remedy so sure or so speedy to secure adequate service 
by the existing company as the power of the Board to grant or withhold 
a certificate to a second company. 

In answer to the suggestion that such a course of procedure might 
soon dissuade new companies from making further applications, Mr. 
Barker said that it is always easy to stir up an agitation for a citizens' 
or other new gas or electric company if the service of the existing com- 
pany becomes too poor. 

VI. 

ACCOUNTS. 

The board has prepared a carefully worked out form of accounts and 
reports, which aims at simplicity, so that the matters presented shall 
help the public ascertain the simple question as to whether the company 
is or is not making too large a profit. This commission has done the 
pioneer work of the country in the matter of the prescription of forms of 
accounts for gas or electric companies. When the California Commis- 
sion secures jurisdiction over gas and electric companies, it will do 
well to examine carefully the forms prescribed by the Massachusetts 
board, copies of w T hich were sent to the California Commission at my 
request. 



64 REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. 

VII. 

LITIGATION. 

In all its history, this Board has had only a single case in court. 



C. 
BOARD OF HIGHWAY COMMISSIONERS. 

This Board, among other powers, has jurisdiction over all telegraph 
and telephone companies within the state. I was unable to visit the 
Board. 



REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. 65 

NEW YORK. 

FIRST DISTRICT. 

I. 

INTRODUCTION. 

The extent of this Commission's jurisdiction has already been dis- 
cussed while considering the Commission of the second district. As 
there stated, its office is in New York City. The largest portion of the 
work of the Commission of the first district arises from its control over 
subways and rapid transit, as the successor of the Board of Rapid 
Transit Commissioners of New York City. Out of 489 employees of the 
Commission in June 1911, 272 were directly and solely concerned with 
this branch of the work. Two thirds of the running expenses of the 
Commission, irrespective of the cost of the construction of subways, 
are directly chargeable to this branch of the work. The Commission 
has but little to do with steam surface railways. Such of these rail- 
roads as have their terminus in New York City keep up adequate service 
and facilities without any action on the part of the Commission. The 
extent of these railroads within the city of New York is so small that 
no questions affecting the rates within the city of New York have 
arisen. Apart from its subway work, the attention of the Commission 
is directed largely to street railways and to gas and electric plants 
within the city of New York. 

II. 

ORGANIZATION AND OFFICE SYSTEM. 

1. The Commission. 

The commissioners are William R. Willcox, chairman, Milo R. Malt- 
bie, John E. Eustis, Wm. McCarroll and J. Sergeant Cram. Chairman 
Willcox was practising law at the time of his appointment by Governor 
Hughes. Mr. Maltbie is a Ph.D. of Columbia University, a thorough 
student of political economy and a hard worker. He does most of the 
public writing for the Commission and also works out and writes a 
large portion of the opinions of the Commission. He and Commissioner 
Bassett, whose term recently expired, did most of the work in connection 
with stock and bond issues. Mr. Eustis is a lawyer. Mr. McCarroll was 
formally a leather merchant. Mr. Cram was recently appointed by 
Governor Dix in place of Commissioner Bassett, who was regarded 
as an extremely efficient commissioner. 

As is the case in the second district, the commissioners of the first 
district are appointed by the governor and devote their entire time to 
the work. Their salary is likewise $15,000 a year. 



66 REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. 

2. The Office. 

The office is divided into the following bureaus : 
(a) Executive. 
(6) Chief Engineer. 

(c) Transportation engineer. 

(d) Gas and electricity. 

(e) Franchises. 

(/) Statistics and accounts. 

(a) Executive. 

The Secretary, Travis H. Whitney, is a member of the class of 1900 
at Harvard and of 1903 at the Harvard Law School. He has the work 
of the office exceptionally well in hand, and directs, with considerable 
ability, the administrative work of the Commission. The executive 
office apart from the secretary, consists of the counsel and his office, 
and of sixty-four employees, of whom thirty-two are clerks, and sixteen 
stenographers. Among the other employees, are two assistant secre- 
taries, one librarian, one purchasing agent and one photographer. 

(6) Chief Engineer. 

The attention of the chief engineer and his department is confined 
entirely to subway construction work. The chief engineer has an office 
force and an engineer of subway construction, under whom are six 
divisions and a sewer division and a division of design. There are two 
hundred and seventy-one men directly under the Chief Engineer. 

(c) Transportation Engineer. 

The transportation engineer, in addition to his office force, has divi- 
sions of transit inspection, equipment inspection and accidents and 
complaints. The division of transit inspection employs forty-three per- 
sons, including thirty-two inspectors and six or eight assistant engineers. 
The division of equipment inspection consists of ten railway engineers, 
five electrical engineers and one inspector. The division of accidents 
and complaints consists of one assistant electrical engineer and five 
inspectors. 

(d) Gas and Electricity. 

The gas and electricity bureau consists of thirty-three employees, 
among whom are one secretary, six inspectors and twenty-three gas 
meter testers. 

(e) Franchise bureau. 

The franchise bureau consists of the chief of bureau and ten 
employees. 

(/) Division of statistics and accounts. 

This division consists of the chief statistician and seventeen employees, 
including five statisticians and six accountants and six stenographers 
and clerks. 



REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. 67 

The budget is about $1,000,000 a year. The state of New York pays 
the salaries of the commissioners, the counsel and the secretary and the 
city of New York pays the other expenses. The city bears its share of 
the expenses by means of short term notes which are placed in the next 
year's city budget as a part of the city's indebtedness. For printing 
alone, apart from the subway and rapid transit work, the Commission 
last year spent over $35,000.00. 

3. Office System. 

The secretary is the administrative head of the Commission. I ob- 
served the number of men coming into his office during the two days I 
was there and can bear witness to the very large number of persons 
whom he sees during the day. These are partly members of the office 
force coming to him for their instructions and rendering. reports to him, 
partly representatives of the press and partly third parties. The secre- 
tary handles all the mail. A stenographer opens the mail early in the 
morning and writes on a tag, in duplicate, the general nature of the 
letter, with a reference' to the person who wrote it. An assistant secre- 
tary then stamps on the tag a reference to the person or department to 
whom the letter is to go. When the secretary arrives in the office, he 
glances over the letters and tags, and the letters are then distributed. 
One of the duplicate tags goes with the letter and the other is kept in the 
secretary 's office and filed, so that he can determine at once to whom the 
letter was assigned. When the letter is returned with its answer, the 
second tag is taken off and filed with the first. The secretary person- 
ally signs all letters which go out, except those of the legal and engineer- 
ing departments. The secretary also prepares carefully the work to be 
taken up by the Commission at its meetings. 

III. 

LEGAL DEPARTMENT. 

The legal department is headed by James S. Coleman, counsel for the 
Commission, who receives a salary of $10,000.00 per year. His office 
force consists of five assistant counsel, two junior assistant counsel, a 
secretary to counsel, four stenographers and four clerks. One assistant 
counsel draws all the orders in stock and bond cases and similar matters, 
besides taking care of legislation affecting the commission. Another 
counsel and two assistants handle the Commission's rapid transit and 
subway work. Another assistant counsel has charge of matters arising 
out of the railroad law, such as grade crossings, service and the like. 

This Commission seems to have more legal work than any other rail- 
road or public service commission in the United States. This condition 
arises partly from the large number of contracts and agreements which 
must be prepared in connection with the Commission's subway work, 
and partly from the fact that this Commission seems to have more litiga- 



68 REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. 

tion than any similar commission. The large amount of this litigation 
seems to be due to three causes : 

1. Unfavorable judges. 

2. Antagonistic corporations. 

3. Action on the part of the Commission in exercising powers which 

the courts later hold are not conferred by the act. 

• 

1. Writ of review. 

The original intention of Governor Hughes and the framers of the 
statute was that there should be no appeal or review of an order of the 
Commission, the complainant being left to his remedy by injunction. 
The state courts, however, held that the remedy of review prescribed by 
the code of civil procedure would lie. The commissioners are strongly 
opposed to the right of review and are apparently preparing to amend 
the statute so as to take away this right, as soon as they can secure a 
favorable legislature. One of the assistant counsel showed me the 
transcript in the Third Avenue case. The printed volumes of the tran- 
script are at least two feet high. The corporations, in presenting their 
cases, put in every conceivable kind of testimony, and the Commission 
itself includes the voluminous reports and records which it may have 
considered in arriving at the decision. 

Mr. Coleman strongly favOrs the right of review and points out that 
trial by injunction would take much longer and would be far more 
cumbersome than review. He might also have pointed out that in the 
absence of the right of review in the state courts there is nothing to 
prevent a corporation from going at once to the federal courts for an 
injunction, freed from any condition which the legislature may pre- 
scribe for such cases in the state courts. 

2. Litigation. 

The New York state judges have on every possible occasion whittled 
down the powers of the Commission. The lower federal judges seem 
also to be unfavorably inclined. The famous Consolidated Gas case, 
which was finally decided in favor of the Commission in the United 
States Supreme Court, was decided adversely to the Commission in every 
inferior court. The following are some of the leading cases affecting 
the powers of the Commission : 

a. Willcox vs. Consolidated Gas Company, 212 U. S. 40. 

In this case, the Supreme Court of the United States finally sustained 
a statute fixing the price of gas at 80 cents. 

b. Long Acre Electric Light and Power Company Case. 

In this case, the Commission, on general grounds of public policy, 
refused authority for the issue of stocks and bonds of the newly formed 
Long Acre Electric Light and Power Company. The Commission 



REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. 69 

regarded the matter as simply an effort on the part of the applicant to 
secure the desired permission so that it might then be in a position to 
force a sale to the Consolidated Gas Company. The courts reversed the 
order of the Commission, denying the desired authority, and the Com- 
mission thereupon on July 28, 1911, while I was visiting them, finally 
granted the desired certificate. 

c. South Shore Traction Company Case. 

This was an application to build an electric railway from Queens 
County over the Queensborough Bridge into Manhattan. The Commis- 
sion found that public convenience and necessity would be subserved 
by the construction of the contemplated railway, but held that the 
franchise granted by the city of New York did not sufficiently protect 
the city because it did not provide sufficiently for the use of the bridge 
by possible later companies. The court overruled the Commission, on 
the ground that the Commission's power as to franchises was merely 
a perfunctory power of approval, without the right to impose conditions 
or qualifications. 

d. The Third Avenue Railroad Case. 

This was a case of reorganization. The Commission refused to author- 
ize the issue of some $73,000,000 of stocks and bonds, on the ground 
that the real value of the plant was not over $58,000,000. The court 
held that under a proper construction of the language of the statute as 
to reorganization, the companies had the full power to issue up to the 
combined stocks and bonds of the component companies and that the 
Commission had no power to impose any condition which would lower 
this total, even for the purpose of squeezing out water. These people 
applied twice to the Commission and were twice refused. The decision 
of the appellate division overruling the Commission was handed down 
on June 21, 1911. The Commission intends to appeal the case. 

IV. 

STOCKS AND BONDS. 

Apparently the most important work of the Commission, apart from 
its subway and rapid transit work, is that in connection with applica- 
tions for approval of stock and bond issues. The rules of procedure 
in these matters are similar to those of the second district already 
referred to. The Commission makes a very thorough investigation in 
each case, and, as a part of its inquiry, at times makes a physical valua- 
tion of the plant. There is considerable question, as a matter of law, 
whether the Commission has been granted the power to impose con- 
ditions on the granting of the desired permission. The Commission acts 
on the theory that it has this right, and often imposes quite a number 
of conditions. A typical order was issued on July 28, 1911, in the mat- 



70 REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. 

ter. of the application of the Long Acre Electric Light and Power 
Company for authority to issue $10,000,000 of preferred stock and 
$50,000,000 of bonds to be secured by mortgage on its property. The 
Commission's order authorized an issue of $2,000,000 of capital stock and 
of $50,000,000 of bonds, of which bonds, however, only $4,000,000 may at 
present be issued. After specifying the purpose for which the money 
may be used, the order sets out the following conditions : 

1. No bond shall issue until the existing mortgage has been satisfied. 

2. $2,000,000 of bonds may issue only when $1,000,000 of new stock 
has been fully paid in. The same condition governs the second 
$2,000,000 of bonds. The bonds may not be sold at less than 90 per 
cent of par, and the proceeds must be applied as specifically directed. 

3. If the company proposes to sell the bonds for less than 90 per 
cent of par, it must publish notice of the sale and permit a public 
bidding under the control of the Public Service Commission. 

4. Discounts, commissions and expenses shall not exceed $400,000 
and shall be amortized out of the income of the company before July 1, 
1961. 

5. The Company must keep full accounts of receipts and applications 
of proceeds of sales and make each month a verified report of the same 
to the Commission. 

6. No proceeds shall be spent until an itemized bill therefor has been 
submitted to the Commission. 

7. Stocks and bonds, under this authority, must issue prior to July 1, 
1913. 

8. A duplicate original of the mortgage must be filed with the secre- 
tary of the Commission. 

Commissioner Maltbie states that in his judgment the present law 
concerning applications for approval of stock and bond issues is satis- 
factory, except that the statute should clearly confer upon the Commis- 
sion the power to prescribe conditions on the issue of stocks and bonds, 
should make the power of the Commission apply to reorganizations, and 
should provide, in addition to its present provisions, that notes of a 
corporation running for less than a year can not in turn be replaced 
by other notes. 

The street railway conditions in New York City show very clearly the 
necessity of public control over the issue of stocks and bonds. Although 
New York City is the richest passenger traffic territory in the country, 
every street railway company in that city is in the hands of a receiver. 
The reason is that every time any of the extremely numerous organiza- 
tions and reorganizations in street railway properties were effected, the 
amount of capital stock was increased and the issue of bonds was 
augmented. The result is that today these companies are vainly trying 
to pay interest on a tremendous amount of watered capital and exces- 



REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. 71 

sive bond issues. It further follows that the companies have no money 
for the betterment of the service or for the purchase of necessary 
additional equipment or facilities. The investing public has suffered 
because of excessive capitalization, and the traveling public because 
of inability to improve service, facilities and equipment. If at the 
time these organizations and reorganizations started, an efficient state 
commission had had control of stock and bond issues, the present condi- 
tion of affairs Avould never have resulted. 

V. 

CERTIFICATES OF PUBLIC CONVENIENCE AND NECESSITY. 

Section 53 of the Public Service Commission law, referring to rail- 
roads, street railroads and common carriers, and similar sections 
applicable to gas and electric companies and telegraph and telephone 
companies, provide that no company shall begin the construction of 
its plant without first securing from the Public Service Commission 
a certificate of public convenience and necessity. Dr. Wilcox told me 
that the public service field had already been so thoroughly covered in 
Xew York City that very few applications have been made or will be 
made for certificates of public convenience and necessity. No such 
application has been made with reference to gas and electric com- 
panies. Apparently no case has arisen as to railway companies except 
the South Shore Traction Company case, supra, in which case, Commis- 
sioner Bassett specifically found that public convenience and necessity 
existed but refused a certificate because of disapproval of certain 
provisions of the franchise granted by the city. 

VI. 

APPROVAL OF FRANCHISES. 

The sections referred to in section V hereof further provide that the 
corporations therein specified shall not exercise any franchise or right 
not theretofore lawfully exercised without having first secured the 
permission and approval of the proper Commission. The statute con- 
tains similar provisions with reference to the transfer of franchises or 
stock. In the South Shore Traction Company case, the court held 
that the Commission does not have the right to refuse approval to the 
exercise of a franchise, except in so far as the public safety is affected. 
If this is the law, the statutory power in this respect is at present largely 
ineffective. 

VII. 

FRANCHISE BUREAU. 

The Commission of the first district is the only commission in the 
country which has a special franchise bureau. The head of the bureau 
is Dr. Delos F. "Wilcox, a Ph.D. of Columbia, author of "Municipal 



72 REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. 

Franchises" and a number of pamphlets and magazine articles, and an 
unusually well posted man. Dr. Wilcox has made a thorough study of 
all the organizations and reorganizations, mergers and consolidations, 
affecting the public service corporations of this district and of all the 
franchises which have been granted to them. He furnished the material 
from which Commissioner Maltbie published a two hundred and thirty 
page book on "Franchises of Electrical Corporations in Greater New 
York," accompanied by an illuminative chart. 

1. Reports and documents from companies. 

This bureau secured from each company subject to the jurisdiction 
of the Commission a certified copy of each document affecting its organi- 
zation, reorganizations, consolidations, mergers, etc., and of every deed, 
franchise, lease or agreement and all miscellaneous documents affecting- 
its corporate existence. The bureau has secured a very large number of 
these documents and has filed them by companies, each document in a 
separate file with a number. A card index is arranged by original 
companies. As to each such company ? the index has subheads for cer- 
tificate of incorporation, franchises, leases, operating agreements, etc. 
Maps secured from the companies in connection with their franchises 
are also indexed but separately filed. 

2. Franchise books. 

Dr. Wilcox's office has prepared blue prints showing the history 
of every franchise that has been granted within the limits of the city 
of New York. Each map shows some franchise or franchises, trackage 
actually used and trackage owned and trackage operated under lease, 
with appropriate references. Along the edges of the print, Dr. Wilcox 
has written historical data showing the history of each franchise. These 
maps follow each other in chronological order and are pasted into four 
large scrap books, one book for each borough. 

3. History charts. 

Dr. Wilcox has also prepared charts showing diagrammatically the 
history of each company performing a certain kind of service, with the 
original organization and all successive organizations, reorganizations, 
mergers, consolidations, receiverships, etc., including the stock owned in 
other corporations. These charts show as to each kind of public service, 
a large number of original companies gradually merging into one or 
two which now control the situation. Copies both of franchises and 
history charts in so far as they affect electrical corporations will be found 
in the book of "Franchises of Electrical Corporations in Greater New 
York, ' ' above referred to. 

4. Value of franchise compilations. 

The franchise compilations so prepared are of great assistance to the 
Commission in the matter of the approval of stock and bond issues and 



REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. 73 

may also be used as the basis for actions to forfeit a considerable 

number of unused franchises. This data also shows that in some cases 

the public service corporations are using the streets of the city of New 

York without any franchise at all. 

There is no statutory provision in New York for an indeterminate 

franchise, similar to that of Wisconsin, except in the Rapid Transit 

Act, affecting the subways and the rapid transit system of New York 

City. 

VIII. 

PHYSICAL VALUATION. 

The Commission has made no physical valuations except in connection 
with a few matters of approval of stock and bond issues. 

IX. 

NEWSPAPERS. 

The relationship between the Commission and the press is very close. 

An Associated Press correspondent has his office with the Commission. 

The first assistant secretary spends almost his entire time in preparing 

for the press statements of what the Commission is doing, including 

abstracts of opinions. While I was in the office, a constant stream 

of newspaper men kept coming in for news. Secretary Whitney lays 

great stress on this part of the Commission's work. He suggests for 

California a card index of all the newspapers of the state with their 

affiliations, dates of publication, owners, etc., and a system of sending 

out statements to all newspapers which are willing to run Commission 

news. 

X. 

LIBRARY. 

The Commission has employed Dr. Whitten, another Columbia Ph.D., 
who receives a salary of some $3,600.00, and spends his entire time in 
collecting a library of reference books and reports and newspaper clip- 
pings and magazine articles, referring to the subject-matter of the Com- 
mission's work. The Commission's library is by far the most complete 
of any railroad or public service commission visited by me. 

XI. 

ACCIDENTS. 

Immediate notice of every accident is given to the Commission by 
telephone or telegraph. One of the Commission's inspectors is on the 
ground within a few moments and takes the names of the witnesses 
and gathers information concerning the cause of the accident. The 
Commission has a photographer who takes photographs of the surround- 
ings whenever applicable. In serious cases, the Commission also holds 
a hearing of its own. In case of death, it always sends a representative 
to the coroner's inquest. Within twenty-four hours after the accident, 
the company must send in a written report. 



7-i REPORT ON RAILROAD AND PUBLIC , SERVICE COMMISSIONS. 



MARYLAND. 

I. 

INTRODUCTION. 

The Public Service Commission of Maryland was created by Act of 
April 5, 1910. The Commission has jurisdiction over all railroads of 
every kind, common carriers and gas, electricity, telephone, telegraph 
and water companies. The Commission started work in May, 1910, and 
is still in the formative stage. 

The statute seems to have been modeled very largely on the New 
York Act and partly on the Interstate Commerce Commission Act. 

II. 

ORGANIZATION AND OFFICE SYSTEM. 

1. The Commission. 

The commissioners are James M. Ambler, Chairman, Philip Laird, 
and Joshua W. Hering. Chairman Ambler is an attorney. Dr. Hering 
is a practicing physician. 

2. Employees. 

The Commission has a counsel and assistant counsel. The secretary 
is Louis M. Duvall. There are several clerks in the office. The Com- 
mission's engineer is now engaged in making a physical inspection of 
the public service corporations of the state, preliminary to a physical 
valuation. 

III. 

STOCK AND BOND ISSUES. 

The Maryland Statute contains provisions similar to those of the 
New York Statute with reference to the approval by the Commission 
of issues of stocks and bonds. While I was visiting the Commission, 
they were considering an application of a proposed railroad for per- 
mission to construct a railroad and for an approval of a stock and bond 
issue. The promoters intended to utilize a roadbed constructed some 
twelve or thirteen years before, largely from state and county moneys, 
and to secure their funds from a popular subscription. The pro- 
moters had not secured permission from the county authorities to cross 
the public highways nor had they filed with the Commission the data 
required in the Commission's rules of procedure. The Commission was 
inclined to withhold consent, at least until the necessary franchise for 
crossing the public highway had been secured from the county author- 



REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. 75 

ities. The Commission's disinclination to permit the establishment of 
any more grade crossings entered largely into the case. The attention 
of the Commission seemed to be directed very largely to the question of 
the certificate of public convenience and necessity and not so much 
attention was paid as to the amount of the stock or bond issue which 
should be authorized. 

As above stated, this Commission is in its formative period. It gives 
every indication of doing good work when it is fairly under way. 



INTERSTATE COMMERCE COMMISSION. 

While with the Interstate Commerce Commission, I paid particular 
attention to matters of litigation and to the investigation which the 
Commisison is now carrying on into the express rates of the country. 
I also conferred with the Post Office Department in the matter of cer- 
tain data which they have secured from the railway companies as to all 
kinds of passenger train service, including express and mail. 

I also examined the Commission's filing system and was shown the 
method of handling both formal and informal complaints from the 
time of their filing to their final disposition. 

The Commissioners were all out of town on their vacations, so that 
I had no opportunity to discuss with them any of the problems of public 
regulation and control of public service corporations. 



6 — RC 



REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. 



GEORGIA. 



INTRODUCTION. 

The Railroad Commission of Georgia* was created by act of October 
14. 1879. This act provided for the appointment of three commissioners 
to serve for six years at an annual salary of $2,500.00, with jurisdiction 
over all railroad companies except street railroads. It was made the 
duty of the Commission to establish rates of charges. By act of Decem- 
ber 18, 1890, it was made the duty of the Commission to investigate all 
interstate freight rates affecting Georgia. The act of October 17, 1891, 
made it the duty of the Commission to inspect railroads, on complaint 
made, with respect to their safety. Another act of October 17, 1891, 
extended the jurisdiction of the Commission to the fixing of storage 
rates. The act of October 21, 1891, extended the jurisdiction of the 
Commission to express and telegraph companies, with power to fix their 
rates. The act of August 21, 1906, provided that the commissioners 
should be elected instead of appointed. The act of August 22, 1907, 
gave to the Commission its present powers. It increased the number of 
commissioners from three to five and gave to the Commission jurisdic- 
tion over railroads of all kinds, common carriers, express companies, 
telephone, telegraph, dock, wharfage, gas, electric light and power and 
cotton compress companies. 

II. 

ORGANIZATION AND OFFICE SYSTEM. 

1. The Commission. 

The commissioners are H. Warner Hill, Chairman, George Hillyer, 
O. B. Stevens, Chas. Murphey Candler, and Joseph S. Gray. Chairman 
Hill is a lawyer and has served on the Board some eight or ten years. 
In 1907; Governor Hoke Smith removed Joe Brown, then chairman of 
the Board. The governor appointed a member in place of Brown and 
the law was thereafter amended so as to add two commissioners, making 
five, the two new commissioners to be appointed by the governor. 
Judge Hillyer was appointed by Governor Smith in 1907 and is like- 
wise a lawyer. Mr. Candler fathered the present railroad commission 
law in 1907 and was likewise appointed by Governor Smith. Mr. 
Stevens is a farmer. Mr. Gray is a railroad man. The statute provides 
that the chairman shall devote his entire time to the duties of his office 
and that he shall receive a salary of $4,000. The other commissioners 
are paid $2,500 each and apparently do not have to devote any con- 
siderable amount of time to the work. 



REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. 77 

2. Employees. 

The employees of the Commission consist of Campbell Wallace, sec- 
retary; J. Prince Webster, rate expert; an assistant rate expert and a 
stenographer. The Commission has no engineers or inspectors or 
accountants. 

The budget is twenty-eight thousand seven hundred dollars per year, 
of which twenty-three thousand seven hundred dollars is paid for sal- 
aries, leaving three thousand dollars for contingent fund and two thou- 
sand dollars for printing. The Commission is very much handicapped for 
lack of money. Though the act of 1907 makes it the duty of the Com- 
mission "to ascertain the cost of construction and present value of the 
properties in Georgia" owned by each of the public service corporations 
over which the Commission has control, nothing has been done for the 
reason that the legislature has provided no funds. As the contingent 
fund of three thousand dollars must pay the traveling expenses of the 
commissioners and most of the expenses of running the office, very little 
money is left for any work outside of the office. 

3. Office System. 

The office correspondence is very carefully indexed in a bound index 
book. No- card system or letter press books are kept. The incoming 
mail seems to consist largely of weekly passenger train reports, accident 
reports and general inquiries. 

III. 

LEGAL DEPARTMENT. 

Judge Hines is special attorney for the Commission. His chief work 
is to write opinions on matters submitted to him by the Commission. 
The Commission has had almost no cases in court. In 1902, the Com- 
mission lowered passenger fares and also freight rates. The federal 
courts refused to issue an injunction in the passenger case, preferring 
to wait to see whether the fares would prove confiscatory. In the freight 
case, however, a temporary injunction was issued by the federal court. 
The case has not as yet been decided by that court. In the mean time, no 
further reductions in freight rates have been made by the Commission. 

IV. 

RATES. 

The statute provides that "the power to determine what are just and 
reasonable rates is vested exclusively in the Commission." Under this 
power, the Commission in 1880 established maximum freight and pas- 
senger distance tariffs with a table of distances and also a freight class- 
ification table. Changes in these tables are made from time to time, 
especially in the classification tables. The carriers file with the Com- 



78 REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. 

mission all new tariffs, and these, under a general order, become the 
maximum tariffs of the Commission, unless the rates are in excess of 
those theretofore established in the maximum tariffs. Under general 
order of the Commission, no railroad company can change a freight or 
passenger schedule or discontinue the same without permission from 
the Commission. The Commission has placed the railroads of the state 
in different classes as to both passenger and freight business, and per- 
mits the members of a different class to charge different maximum 
rates and fares. 

v. 

STOCK AND BOND ISSUES. 

Section 8 of the act of 1907 gives the Commission power to control 
all issues of stocks and bonds and contains provisions similar to those 
in the New York law, upon which it was modeled. The Commission has 
adopted the most detailed rules which I have seen concerning the con- 
tents of the petition for the approval of such issues. The Commission 
hears the evidence presented, but apparently does not send any one out 
to look at the petitioner's property. The Commission has no money 
available for this purpose. 

The Seaboard Air Line Railway in 1910 applied for and was granted 
permission to issue $150,000,000 of bonds. This is a foreign corpora- 
tion. It stated to the Commission that, in its judgment, the Commission 
had no jurisdiction for the reason that the applicant was a foreign cor- 
poration, but that it desired to remove any possible doubt. After secur- 
ing the authority, the railroad refused to comply with the order of the 
Commission to report the disposition of the securities, and the use made 
of the money, and Judge Hines reported to the Commission that it. had 
no authority to compel the, report. Chairman Hill suggests the advisa- 
bility of making sure that the statutes prescribe a penalty for failure 
to furnish these reports. 

Apparently very little thought has been given by any of the- states 
to the question as to whether a state has the right to insist on approval 
by its Commission of issues of bonds, notes or other evidences of indebt- 
edness by foreign corporations, affecting property within the state. 

VI. 

EXPRESS RATES. 

The Southern Express Company is the only express company within 
the state. The Commission several months ago instituted an investiga- 
tion into the rates, rules and regulations of this company and prepared 
a list of questions asking for information. The Commission has not 
hitherto taken any steps to ascertain the cost of the railroad end of the 
express service. 



REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. 79 

i 

VII. 

PUBLIC UTILITIES. 

These have been under the jurisdiction of the Commission since 1907. 
Only two cases involving the rates of such companies have come before 
the Commission. No system of accounts have been prescribed. The 
form of annual return provides for information concerning simply ten 
or twelve facts as to the financial operations of the companies. 

VIII. 

TELEPHONE AND TELEGRAPH COMPANIES. 

The remarks under section VII are applicable to these companies as 
well. 

IX. 
COURT REVIEW AND APPEAL. 

No review is provided for by the statute. Judge Hilly er tells me 

that whenever the action of the Commission is attacked, the procedure 

is one de novo for an injunction. The Commission is rather proud of 

the fact that, with the exception of the federal proceeding above 

referred to, no adverse decisions have been rendered by the courts. The 

powers of the Commission have been uniformly upheld, ever since the 

case of Smith vs. Georgia Railroad, 70 Georgia, 694, in which case a 

decision in favor of the Commission was affirmed by the United States 

Supreme Court. 

X. 

RAILROAD MAPS. 

This Commission, in common with almost all of the other railroad 

commissions, publishes at stated intervals a railroad map showing all 

the railroads of the state. The Georgia map shows on its back the 

•census returns. 

XI. 

PASSENGER TRAIN DELAYS. 

This Commission, in common with the Texas and Oklahoma Com- 
missions, receives from each railroad every week a statement of all 
passenger train delays and the reasons therefor. These reports are then 
filed. The Commission does not have an inspector who can go out and 
personally investigate the delays. 

XII. 

GENERAL ORDERS, RULES AND REGULATIONS. 

The Commission has prepared freight rules; passenger rules; rules 
governing railroad, express and telegraph depots, stations, agencies and 
offices; storage (demurrage) rules; telegraph rules; passenger and 



80 REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. 

freight classifications ; rules, tariffs and classifications governing express 
companies ; and some nineteen general orders — which rules, regulations 
and orders are constantly referred to by the commissioners in their con- 
versation. The commissioners spoke to me of the care exercised in 
framing these rules and orders. Many subjects covered by them, such 
as the establishment of tariffs, inhibitions upon the use of passes, the 
filing of accident reports, etc., are, in other states, provided for by 
specific statutory enactments, but have been covered in Georgia under 
the broad general powers granted to the Commission. 



REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. 81 



TEXAS. 

I. 

INTRODUCTION. 

The Railroad Commission of Texas was established in 1891, and has 
jurisdiction over steam railroad and express companies, but none over 
public utilities. An elaborate stock and bond law was approved on 
April 8, 1893. 

II. 

ORGANIZATION AND OFFICE SYSTEM. 

1. The Commission. 

The commissioners are Allison Mayfield, chairman, Wm. D. Williams 
and Joseph R. Wortham. The commissioners were originally appointed 
by the governor for three year terms, but the Constitution was amended 
in 1894 so as to provide that the commissioners should henceforth be 
elected for six years. The commissioners receive a salary of $4,000.00 
each. Governor Colquitt was formerly a railroad commissioner and 
seems to have been elected governor on the record which he made in that 
capacity. 

2. Employees. 

The secretary of the Commission is E. R. McLean. The Commission 
also employs an engineer, an auditor, a rate expert and some four or 
five clerks and stenographers. The secretary receives a salary of 
$2,000.00 and the engineer $3,000.00. The Commission has no inspectors. 
The engineer seems to do all the inspection for valuations in connection 
with the stock and bond issues and any other inspection which may be 
necessary. The engineer of the Commission was formerly R. A. Thomp- 
son, who is regarded as one of the best railroad commission engineers 
of the country. 

III. 

RAILROAD RATES. 

The Commission fixes the moving rate. When the statute was passed, 
the railroads had in effect distance tariffs in Texas. The Commission 
has used these tariffs as a basis and has established a distance table for 
class rates, some forty-seven commodity rate tariffs, and a class rate 
classification. The annual reports give the rate effective on each rail- 
road. By reason probably of the fact that the rates were but little 

lowered at the outset, the railroads did not take the matter into the 

7 % 

courts. The Commission from time to time makes alterations in the 
rates and classifications both on its own initiative and on petition from 



82 REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. 

the carrier. If a carrier wishes a rate to be altered and writes a 
letter to the. Commission stating its desire, the Commission, if favorable, 
grants the request by issuing a circular which is mailed to the applicant, 
to every railroad in the state and to other interested parties. The appli- 
cant does not file a tariff showing the proposed change, but the Com- 
mission issues its circular in its own form. 

There has been almost no freight litigation in the state. With ref- 
erence to passenger rates, the Commission ordered a 2 cent rate in on 
the Galveston, Houston and Henderson Railroad as a test case. The 
railroad promptly secured an injunction and ultimately won out on the 
ground of confiscation of property. The Texas passenger rate is now 
3 cents per mile. 

IV. 

EMERGENCY RATES. 

The act of April 5, 1897, as amended on June 5, 1899, gives the 
Commission power ' ' when deemed by it necessary to prevent interstate 
rate wars and injury to the business or interest of the people or railroads 
of the state, or in case of any other emergency to be judged by the 
Commission, to temporarily alter, amend or suspend any existing 
freight rates, tariffs, schedules, orders and circulars of any railroad or 
part of the railroad within the state. ' ' 

I was informed that the provision concerning the prevention of 
interstate rate wars* has little or no meaning. The real purpose of the 
provision was to give power to the Texas Commission to lower an intra- 
state rate from a producing to a consuming center in cases in which 
an interstate rate from a producing center outside of the state had been 
lowered, so as to lessen the differential theretofore enjoyed by the Texas 
producers. In cases of this kind, the Texas Commission regulates the 
state rates so as to keep Texas markets for Texas producers. The fear 
that their intrastate rates within Texas will be lowered has prevented 
carriers from lowering their interstate rates. In a number of cases 
the railroads have written to the Commission asking whether it would 
have any objection to a reduction of an interstate rate from Louisiana 
into Texas, and the Commission had uniformly replied that it would 
have such objection in any case in which Louisiana products would 
thereby come into competition with those produced in Texas. As a 
result of the Commission's uniform reply, the railroads in these cases 
have refrained from reducing the interstate rates. 

The rate expert told me that as far as he knew, this paragraph had 
never been attacked on the ground that the emergency rates were estab- 
lished without any notice whatsoever to the carrier and consequently 
without due process of law. We agreed that it would be wiser to give 
some short notice, such as three days. 



REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. 83 

V. 

EXPRESS RATES. 

Early in its history, the Commission established a distance express 
tariff applying on merchandise for every pound up to 100; a similar 
tariff for general specials; similar tariffs for certain commodities such 
as green and fresh fruits, melons and vegetables, beer and other liquors, 
mineral and spring water ; also an express classification with rates and 
rulings. 

The Commission seems very largely to have established the rates and 
regulations in effect at the time, so that no complaint was made by the 
express companies. Later, when Commissioner (now Governor) Col- 
quitt was elected, he started an investigation for a reduction of express 
rates. The Commission made an order reducing express rates (an early 
report states that the average reduction was about 20 per cent, although 
it is very questionable whether the reduction was in fact so large), 
whereupon the express companies at once enjoined the Commission, 
as is their usual practice in these cases. Mr. Colquitt took a mass of 
testimony in San Francisco and elsewhere. After some six or eight 
months, the matter was compromised by a new order making an average 
cut of some 8 per cent, and the rates established by that order are in 

effect to-day. 

YI. 

DEPARTMENT OF STATISTICS AND ACCOUNTS. 

Mr. W. F. Fitzgerald, who was for over twenty years auditor of the 
Southern Pacific Company, has charge of the work of this department. 

The railroad companies make annual returns on the forms prescribed 
by the Texas Commission. These forms are modeled on those prepared 
by the Interstate Commerce Commission for steam railroads. In addi- 
tion to the information called for by the interstate forms, the Texas 1 
forms provide for a segregation of operating revenue, both freight and 
passenger, into local, interline-interstate and interline-intrastate. The 
state returns call for a segregation of operating expenses into one 
hundred and sixteen accounts, based on those prescribed by the Inter- 
state Commerce Commission. In addition to this information, the form 
calls for the following information : 

1. As to passenger traffic, it calls for the number of passengers 
carried, earning revenue, and the number of passengers carried one 
mile as to local, interline-state and interline-interstate traffic. 

2. As to freight traffic, similar information is requested as to the 
number of tons carried earning revenue, and the number of tons carried 
one mile. 

3. As to train mileage, information is called for as to revenue freight, 
revenue passenger, revenue mixed, revenue special service, total revenue, 



84 REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. 

train mileage and non-revenue totals as to freight, passenger and work 
trains. 

"When the returns are filed with the Commission, they are carefully 
checked over by Mr. Fitzgerald and requests for corrections and amplifi- 
cations are frequently made by him. Before he took office, the reports 
were simply filed without being checked over. The returns are analyzed 
by Mr. Fitzgerald and appear in twenty-six carefully worked out statis- 
tical tables in the annual report of the Commission. The work of the 
Texas Commission in analyzing and tabulating the reports of the rail- 
way companies ranks with the work of the Massachusetts Commission 
as among the best in the country and can be referred to with profit by 
the California Commission when it starts on this same work. 

The Commission receives also from each railroad a monthly report 
of operating revenues, operating expenses, passenger traffic, freight 
traffic and train mileage. Mr. Fitzgerald considers these reports valu- 
able for the reason that they allow the Commission to see month by 
month just how the railroads are spending their money and thus enables 
the Commission to stop unauthorized expenditures. Texas and Okla- 
homa seem to be the only Commissions which require these monthly 
statements. 

Several years ago, the Commission promulgated its bookkeeping rules 
Al and A2. Number A2, prescribing the keeping of accounts so as to 
segregate operating expenses as to passenger and freight for each of the 
one hundred and sixteen accounts prescribed by the Interstate Com- 
merce Commission, and also as to local, interline-intrastate and interline- 
interstate, was enjoined in the district court of Travis County, in the 
suit of Texas and Pacific Railway Company vs. Railroad Commission 
of Texas. The district court in that case rendered judgment against 
the Commission; the case was recently decided on appeal in the court 
of Civil Appeals in favor of the Commission. In this order, the Com- 
mission prescribed the bases of segregation, and the railroads severely 
attacked the same. These bases should be compared with those used by 
the Wisconsin Commission in the Buell case, those prescribed by the 
Oregon Commission and those used by Statistician James Peabody of 
the Santa Fe. 

The Texas Commission uses for express companies the form of return 
prescribed by the Interstate Commerce Commission. 

VII. 
VALUATION OF RAILROAD PROPERTIES. 

The Railroad Commission Act provides that the Commission "shall 
ascertain as early as practicable the amount of money expended in the 
construction and equipment per mile of each railway in Texas, the 



REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. 85 

amount of money expended to procure the rights of way and the amount 
of money it would require to reconstruct the railroad bed. track, depots 
and transportation, and to replace all the physical properties belonging 
to the railroads. ' ' 

Section 3 of the stock and bond law provides that "it shall be the 
duty of the railroad commission to ascertain, and, in writing, report to 
the Secretary of State the value of each railroad in this state, including 
all its franchises, appurtenances and property." 

It will be noted that the directions contained in these two statutes 
differ with respect to franchise values. The duty imposed by the Rail- 
road Commission Act is to ascertain the value of the physical properties 
of the railroads, whereas the duty imposed by the Stock and Bond Act 
is to ascertain the value of each railroad, including all its franchises 
and appurtenances. It might well be that the value of a franchise 
might be considered in determining the amount of stocks and bonds 
which a railroad company may properly issue, while it would be im- 
proper to consider the value of that franchise for rate fixing purposes. 
I assume that some such idea is responsible for the difference in the 
language of these two statutes. 

The Texas Commission, in such valuations as it has made, has appa- 
rently acted under the terms of the stock and bond law and under that 
law has valued some 12,988.09 out of 13,819.44 miles of main trackage 
in the state. 

For the purpose of ascertaining the value of the railroads under the 
stock and bond law, blanks calling for values of (a) railroad bed, 
tracks, etc., (6) rolling stock, (c) miscellaneous — -are handed to the rail- 
roads affected. Upon receipt of these returns, the engineer checks over 
the figures. Under the head of "c" appear street franchises, legal and 
engineering expenses and interest during construction, but not com- 
missions and discounts. All general franchises are valued at 6 per cent 
of the value of the railroads and are then added to the totals derived by 
the addition of a, b, and c, for the purpose of covering such items as 
discount on bonds and contingencies which could not be considered in 
the scheme of valuation provided by law. 

No valuation under the stock and bond law has ever been contested in 
Texas. There was some talk when I was in Austin to the effect that the 
International and Great Northern Railroad would appeal from a recent 
valuation of the Commission, but nothing definite has been done in the 
matter. This railroad wished to issue bonds in excess of the amount 
which could be issued on the basis of the valuation made by the Com- 
mission. 



$6 REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. 

VIII. 
STOCK AND BOND LAW. 

Texas has the most complete stock and bond law of which I know. It 
prescribes practically every detail, leaving little or nothing to the discre- 
tion of the Commission. It declares that no bonds or other indebtedness 
shall issue, secured by lien or mortgage on railroad properties in Texas, 
above the reasonable value of the property, except that in case of 
emergency the issue may run up to 50 per cent in excess of such 
value. The Commission has confined emergencies to fire, flood or other 
acts of God. The statute provides for a valuation of railroad properties 
as described in paragraph VII hereof, with the right on the part of the 
company to a hearing before the Commission; for the filing by the 
Commission of its certificate of value with the secretary of state ; for 
the authorization of the issue by the Commission ; and for the registra- 
tion of its bonds by the railway company with the secretary of state, 
with adequate penalties. 

As every railroad corporation doing business in Texas except the 
Texas Pacific (under a federal charter) and the Atchison, Topeka and 
Santa Fe, a leasing line, operates under a Texas charter, the question 
whether the stock and bond law applies to a foreign corporation has 
not arisen in Texas. 

IX. 
CONTROL OVER CORPORATIONS. 

By providing that each railway shall keep in Texas an office for 
transfer of stock, that the directors must hold at least one meeting 
annually in Texas, that no railway company shall consolidate with 
any other railway company organized under the laws of any other state 
or the United States, and similar provisions in her constitution and 
statutes, Texas has driven all the railway companies, except the two 
hereinbefore mentioned, to take out separate charters in Texas. This 
result has simplified the control in Texas over stock and bond issues. 

x. 

DEPOT COMPLAINTS. 

I was informed that the Commission handles a large number of 
complaints calling for the erection of additional depots or the improve- 
ments of existing ones. The Commission has no inspectors to send 
out on the line ; the engineer performs all this work. The complainant 
presents his case, with a photograph where applicable, and the defend- 
ant its ease, whereupon the Commission decides. In the important 
Dallas Union Depot case, the attorney general ruled that, as the 
statute now reads, the Commission can not prescribe the exact site of a 
union depot, though it has authority to order the erection of such 



REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. 87 

depot. The Commission, in its 1910 report, referring to union depots, 
recommends that the statute be amended so as to give to the Commission 
authority to fix the site for the location of such depots and also author- 
ity to enforce compliance with the orders of the Commission in the 
premises. 

XI. 

NEWSPAPERS. 

Ten copies of each circular changing rates and ten copies of any 
statement which may be prepared by the Commission for publication are 
placed on a newspaper file in the office. The reporters come in each day 
and take off the copies for their respective papers. The Texas Commis- 
sion, in common with most of the wide awake Commissions of the 
country, lays great stress on the matter of publicity. 



88 REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. 



OKLAHOMA. 

I. 

INTRODUCTION. 

The Corporation Commission of Oklahoma was created by section 
15 of article 9 of the Constitution (1907) and most of its powers and 
duties are defined by the Constitution itself. The Commission has juris- 
diction over railroad, express, telegraph, telephone, oil pipe, car com- 
panies and, at least to a certain extent, over heat, light, power and 
water companies. Some of these latter utilities have denied the right of 
the Commission to regulate their rates. The Commission also claims 
the right under another section of the Constitution to regulate and fix 
the price of any article as to which a monopoly exists, and under this 
section has in certain cases fixed the rates of ice and lumber. 

The Commission has twice asked the legislature to pass a statute 
giving to it control over the issues of stocks and bonds. The statute 
as proposed specified that the sum of stock and bonds should not exceed 
the value of the property except in emergency cases when the total 
might run up to 50 per cent in excess of the value. The Commission 
likewise has no control over the exercise of franchise rights or the 
commencement of construction of a plant. The municipalities them- 
selves determine these matters and uniformly grant the new companies 
the desired permission to enter the field. 

II. 

ORGANIZATION AND OFFICE SYSTEM. 

1. The Commission. 

The commissioners are J. E. Love, chairman, A. P. Watson, and 
George A. Henshaw. Mr. Love is a cattle raiser. Mr. Watson is about 
64 years of age, a farmer and formerly a colonel in the Confederate 
Army. Mr. Henshaw was formerly Assistant Attorney General and 
was a member of the Oklahoma Constitutional Convention. The Com- 
mission is one of the most active in the country. The commissioners 
devote all their time to the duties of their office. They are elected at 
large for terms of six years and receive an annual salary of $4,000 each. 

2. Employees. 

The office is divided into the following departments: 



Executive. 

Auditing. 

Engineering. 

Rate. 

Telephone. 

General corporation records. 



REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. 89 

The law and executive clerk, E. C. Pattern, receives a salary of 
$2,000.00; the rate expert, Mr. Bee, $3,600.00; the auditor, Mr. Stout, 
$2.500.00 ; the telephone expert, Geo. P. Player, $2,500.00 ; the engineer 
$3,000.00; and the corporation record clerk $2,200.00. In addition to 
these men, the Commission employs an assistant engineer and two or 
three tariff men; several assistants to the auditor; two or three assist- 
ants each to the rate expert, the telephone expert and the corporation 
record clerk; and several official stenographers and some four or five 
office stenographers. 

For the two years from July 1, 1909, to June 30, 1911, the legislature 
appropriated for salaries, printing and court expenses $60,200.00; for 
contingent expenses $120,000.00; and for rate litigation in the fed- 
eral courts $50,000.00 — being a total of $230,200.00 for two years, or 
$115,100.00 for one year. For details of the contingent account, see 
the 1909-1910 report, at page 11. 

III. 

COURT PROCEDURE. 

Section 20 of Article IX of the constitution provides that from the 
orders of the Commission therein specified, an appeal may be taken 
directly to the State Supreme Court. The constitution does not specify 
the time within which the appeal may be taken, but Commissioner 
Henshaw told me that the courts had ruled that it may be taken at any 
time within a year. The constitution provides that such appeal may be 
taken in designated cases only, as from orders prescribing rates, charges 
and classifications, and that the legislature may also provide by general 
laws for appeals from orders of the Commission in other cases. Mr. 
Patton pointed out the importance of the limitation just noted. When 
the Commission made its important accounting order (No. 50), the 
corporations asked the Commission to approve a supersedeas bond, 
w T hich the Commission refused to do, on the ground that this was not 
a case in which an appeal would lie (June 29, 1909). On June 30, 
1909, the supreme court denied the request of the petitioners for a 
supersedeas on the ground that this was not an appealable case. Mr. 
Patton pointed out other cases, such as cases of request for information 
to be used in pending litigation, in which the Commission's hands should 
not in his judgment be tied. 

Section 21 provides that the supreme court may grant a writ of super- 
sedeas, but that it can not do so until a suspending bond shall first 
have been approved by the Commission in an amount sufficient to insure 
the payment of all charges in excess of those finally established by the 
court on appeal. The Constitution provides that the Commission must 
thereupon forthwith direct the appealing company to keep such accounts 
as in the judgment of the Commission may suffice to show the amounts 



90 REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. 

being charged or received by the company in excess of the charge 
allowed by the Commission, together with the names and addresses of 
the persons to whom such overcharges will be refundable in case the 
charges made by the company are not sustained on appeal. On the 
final decision, the Commission may direct the manner of the payment 
of refunds. Such appeals shall have precedence in the supreme court 
over all other cases except habeas corpus and state cases already on the 
docket of the court. 

Mr. Patton was of the opinion that the requirements to keep books 
showing excess collections is a powerful detriment against appeals from 
the orders of the Commission. It is an expensive task to keep such 
records. Wells-Fargo & Company are keeping them under their appeal 
from the Commission's order of June 11, 1909. 

Section 22 provides that the supreme court may not consider any 
new or additional evidence, ' ' but the court may, when it deems it neces- 
sary, in the interest of justice, remand to the Commission any case 
pending on appeal and require the same to be further investigated by 
the Commission, and reported upon to the court, before the appeal is 
finally decided." Commissioner Henshaw thinks that this is a good 
provision, for the reason that the court is thus enabled to give to the 
Commission another opportunity in any case in which otherwise it 
would have to decide against the Commission. The Wells-Fargo & 
Company case is now back before the Commission to ascertain just 
what losses in revenue, if any, would be suffered under the Commis- 
sion's order, if it went into effect. 

Whenever the supreme court reverses an order of the Commission 
affecting rates, charges, classifications, etc., it must substitute another 
rate, charge or classification, so that its function in this respect is legis- 
lative and not judicial. This provision was taken from the Virginia 
constitution, referred to in the case of Prentiss vs. Atlantic Coast Line, 
211 U. S. 210, in which case it was held that the federal courts should 
not, as a matter of comity, assume jurisdiction to enjoin an order of a 
state railroad commission fixing rates, until the corporation has com- 
pletely exhausted its remedy by appeal to the final rate fixing body in 
the state, which in Virginia and Oklahoma is the supreme court. Not- 
withstanding an appeal, the Commission has the right to make other 
orders in the same matter based upon different circumstances and con- 
ditions. This provision is obviously to prevent the tying up of the 
entire rate situation during the pendency of court proceedings. 

IV. 

LITIGATION. 

The Oklahoma Commission has had more cases on appeal than any 
other railroad commission in the country. It has had almost as many 
appeals as all the other commissions, which I investigated, put together. 



REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. 91 

Of the first one hundred cases coming before the Commission on 
complaints of third parties and formally heard before the Commission, 
appeals were taken in thirty-seven cases. The record in these cases 
is as follows : 

1. Affirmed (or appeals dismissed) 15 

2. Reversed 5 

3. Partly affirmed and partly reversed 2 

4. Remanded for further testimony 2 

5. Pending 13 

Of the cases reversed, the Commission had in one case ordered a rail- 
road to construct at its own expense a side track so as to equalize 
a disadvantage of location. In two cases, it had ordered a railroad to 
install telegraph service for commercial purposes. In one case, it had 
held that a railroad would have to install all desired street crossings at 
its own expense, and in the fifth case, involving the installation of tele- 
graph service for bulletining passenger trains, there was no evidence as 
to amount of passenger service at the station. 

As bearing upon the reason for so many appeals, it is well to note 
that the Commission granted the petitioner's prayer in its original 
form or a modified form in eighty-six out of those one hundred cases 
and denied it in only fourteen. 

In cases on the Commission's own initiative, in which proposed orders 
are issued and published and final orders are then either issued or not 
issued after hearing, the railroads appealed in nearly every case. Fif- 
teen of these appeals were from orders establishing rates on different 
commodities. The railroads also appealed from orders directing reports 
as to earnings, state and interstate ; requiring accident reports ; requir- 
ing physical connections at junction points ; establishing demurrage and 
storage rules; requiring the promulgation of all rules and regulations; 
and requiring all public service corporations to maintain an office in 
the state. 

The most important cases now in litigation involve the rates of : 

1. Railroads. 

2. Telegraph companies. 

3. Express companies. 

1. Railroads. 

The matters in litigation comprise the 2 cent maximum passenger 
fare law (part of the Constitution) and the different commodity rates 
prescribed by the Commission. The corporations went to the federal 
courts and secured injunctions, so that these rates have never gone into 
effect. The case went to the United States Supreme Court on the con- 
tention of the state that under the Prentiss case, 211 U. S. 210, it was 
the duty of the corporations to first exhaust their remedy by appeal to 

7— RC 



92 REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. 

the state supreme court. Judge Hook, iu the circuit court, differenti- 
ated this case from the Prentiss case on the ground that the Commission 
had refused to grant a supersedeas bond. The United States Supreme 
Court refused to decide this point, but sect the case back to Judge 
Hook, who decided three or four months ago against the state. Com- 
missioner Henshaw, in referring to the decision, said that it would be 
impossible to secure a fair decision from the federal courts as long as 
they insisted on holding that the cost of state service was from two or 
eight times as much as the cost of interstate service. 

Mr. Henshaw said that he hardly thought the Commission would fur- 
ther contest the passenger fare case. Section 37 of article IX of the 
constitution, while establishing a 2 cent maximum passenger fare, gives 
the Commission power "to exempt any railroad from the operation of 
this section upon satisfactory proof that it cannot earn a just com- 
pensation for the services rendered by it to the public, if not permitted 
to charge more than 2 cents per mile for the transportation of pas- 
sengers within the state." The Commission has exempted from the 
provisions of the 2 cent law all railroads applying for exemption. 

2. Telegraph rates. 

On December 2, 1908, the commission issued its order No. 149 pre- 
scribing telegraph rates, rules and regulations. Commissioner Watson 
told me that there would have been no appeal had it not been for rule 
4 providing that the receiving clerk must mark on the message the time 
of filing, and rule 6 providing that the operator on the other end of 
the line must mark on the message the time when received by him. 

On December 19, 1908, the case was certified to the Supreme Court. 
On December 28, 1909, the mandate of the Supreme Court was received, 
requiring the taking of further evidence to show what the company 
would have lost had the order gone into effect. If I am not mistaken, 
a heavy indemnity bond has been filed by the company and it is also 
keeping an account of excess payments. 

3. Express Bates. 

On June 11, 1909, the Commission issued its opinion and order No. 
203, prescribing new rates, rules and regulations for express companies. 
This is a long and carefully worked out order prescribing distance tables 
for merchandise, general special, milk and cream, and other special com- 
modities and also classifications, rules, etc., and making a total reduction 
in rates of about 20 per cent. All four express companies, Wells-Fargo 
& Company, United States, American and Pacific, appealed to the 
State Supreme Court, giving bonds in amounts of $200,000, $33,000, 
$35,000 and $4,500 respectively. The Supreme Court remanded the 
case with instructions to ascertain the amount of loss which would 
have been sustained, had the order gone into effect. The express com- 



REPORT ON RAILROAD AND PUBLIC SEEViCB COMMISSIONS. 93 

panies have taken a large amount of testimony on that point but the 
state has not as yet had an opportunity to rebut the same. 

I was informed that the express companies are trying to compromise 
the case and that they have made several propositions which, while 
seeming fair, have as a matter of fact made but very small reductions, 
for the reason that the proposed reductions are in rates under which but 
few commodities move. The express companies seem to be chafing under 
the expense necessary to keep account of every shipment made, with the 
name and address of the consignor and the amount paid in excess of the 
Commission's order. 

V. 

COMMISSION'S BUSINESS. 

Until recently the matters on which the Commission took action 
were divided into (1) complaints; (2) proposed orders, on Commission's 
own initiative; and (3) citations for disobedience of Commission's 
orders. At present all matters are placed on one general docket file. 
The character of the Commission 's activities appears from the following 
compilation : 

1. Complaints. 

Of the first one hundred complaints on which the Commission took 
action, other than to dismiss at the request of plaintiff or for lack of 
prosecution, the nature of the cases was as follows : 

Steam Railroads. 

Passenger trains — stop on signal 8 

Depots — erection or increase in size 18 

Shipping facilities 5 

Sidetracks, spurs, switches 9 

Railroad crossing — with another railroad 1 

Railroad crossing — with highway 2 

Passengers — treatment of, after wreck 1 

Physical connections, railroads 2 

Stations 2 

Bulletining of trains 1 

Stock pens, water in 2 

Agent at depot 1 

Depot to be moved ; 1 

Additional passenger service 5 

Name of station, change in 1 

Waiting rooms 1 

Stockyard scales '. ' 1 

Agent, discourteous treatment by - 1 

Union stations 1 

Drainage opening 1 

Interurban Railroads. 
Rates, reduction of 1 

Street Railroads. 
Extension of service 1 



94 REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. 

Telephone Companies. 

Installation in railroad depot 9 

Rates, reduction of 1 

Rates, discrimination in 1 

Physical connection 6 

Installation in private residence 1 

Telegraph Companies. 
Installation or restoration of service 7 

Gas Companies. 
Gas to be furnished : 1 

Express Companies. 
. Establishment office and agent 2 

Ice Companies. 

Rates, reduction in 1 

Service, short weight, refusal to sell, etc 4 

A perusal of the foregoing table will show a very great amount of 
time devoted by the Commission to the consideration of the questions of 
service, facilities and equipment. 

2. Proposed Orders. 

These have dealt with matters of fixing rates; accounting rules; the 
filing of plans and specifications of all depots; accident reports; phys- 
ical connection of railroads at junction points ; the filing of inventories 
of all telephone and telegraph properties ; fixing the amount of excess 
fare to be charged to passengers without tickets; demurrage and 
storage rules: handling and moving of freight; filing documents with 
the Commission; requiring all public service corporations to maintain 
offices in the state ; the filing of tariffs by express companies, etc. About 
seventy-five proposed orders were made, of which quite a number were 
never issued. 

3. Citations. 

These citations are for violations of the Commission's orders on infor- 
mation of third parties. The Commission has power to enforce com- 
pliance with its orders by the imposition of fines. The usual fine for 
contempt of the Commission's orders is somewhere between $100.00 and 
$500.00. Up to 1911, there were one hundred and twenty-three of these 
cases. The fines are imposed on the theory that the railroad is in con- 
tempt' for failure to use due diligence in obeying the orders of the 
Commission. In most other states, the desired results would be secured 
without the necessity of contempt proceedings. 

VI. 

AUDITING DEPARTMENT. 

(a) Annual reports. 

This department has prepared forms of annual reports for all rail- 
roads, street railroads, gas, electric, telephone and telegraph companies. 



REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. 95 

The railroad reports contain the information required by the Interstate 
Commerce Commission and also the additional information required by 
the Texas Commission. The gas, electric, telephone and telegraph 
reports have been worked out in considerable detail and will be valuable 
as models. 

(b) Monthly reports. 

Following the lead of the Texas Commission, the Oklahoma Com- 
mission requires each month from each railway company a full state- 
ment of earnings, operating expenses and tonnage moved, going into 
considerable detail as to segregation between state and interstate traffic. 
The Commission also requires a monthly statement of the total tonnage 
and revenue of all commodities moved during the month. 

(c) Organization reports. 

The Commission also required of each railroad subject to its juris- 
diction a special report containing a copy of its charter: its mortgages 
and other agreements affecting its property; minutes of stockholders 7 
meetings, etc. These returns have been bound and are valuable for 
reference purposes. The Oklahoma Street Railway report is particu- 
larly complete. 

VII. 

ENGINEERING DEPARTMENT. 

This department is working on the valuation of the properties of the 
railroads and of the public utilities of the state. As to none of these 
companies is the material in final form. Questions concerning unearned 
increment, right of way multiple, interest, discounts and commissions 
have not as yet been determined by the Commission. 

The department has prepared a complete railroad map of Oklahoma 
and is now preparing detailed maps of each county. The Commission 
paid about $500.00 for 5,000 of these maps, an unusually low figure. 

VIII. 
TELEPHONE DEPARTMENT. 

This department is in charge of Mr. Ceo. P. Player. The telephone 
companies make an annual report and also monthly reports, the latter 
showing the number of toll and residence telephones and the earnings 
and expenses for each station. Mr. Player is now working on material 
for an investigation by the Commission of telephone rates in the state. 
The telephone companies have returned to the Commission, on blanks 
furnished by it, a statement as to the physical values of their plants, by 
stations. 

There are over six hundred telephone companies in the state, most of 
them being so-called farmers' telephone companies. Section 5 of article 
IX of the constitution provides that all telephone and telegraph lines 



96 REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. 

operated for hire must make physical connections with each other's 
lines under such rules and regulations as the Commission may prescribe. 
This is a matter of very considerable importance. The Commission 
forces in these connections whenever the point is raised, with the result 
that it is possible to talk from the Commission's office with over 50 per 
cent of the farmers of the 'state. 

IX. 

RATE DEPARTMENT. 

This department is headed by Mr. C. B. Bee, a very competent man. 
The department has in its files not only all the tariffs affecting Oklahoma 
intrastate business, but also all the interstate tariffs in any way affecting 
the state, both those issued by carriers doing business in Oklahoma and 
those issued by other carriers concurring in the rates into or through 
Oklahoma. These latter tariffs are furnished to the Commission by the 
local railroads. The Oklahoma Commission believes that its tariffs are 
as complete as those of any state commission in the country. 

The Commission handles all interstate commerce complaints for 
Oklahoma citizens, even filing complaints for them and appearing before 
the Interstate Commerce Commission without any expense to the com- 
plainant. 

X. 

CORPORATION CLERK DEPARTMENT. 

This department receives reports from all corporations in the state 
and collects the license taxes. 

XI. 

MUNICIPAL UTILITIES. 

The Commission has no control over public service plants owned or 
operated by municipalities. In this respect it differs from the Commis- 
sions of Wisconsin, Massachusetts and New York. 

XII. 

GAS AND ELECTRIC COMPANIES. 

The Commission's control over these companies has been somewhat 
halting, for the reason that there is a question as to whether the consti- 
tution as now worded confers upon the Commission full power of control 

over this class of corporations. 

XIII. 

USE OF INITIATIVE BY CORPORATIONS. 

The "interests" of the state have three times tried by the initiative to 
repeal a section of the constitution forbidding the consolidation of local 
and foreign corporations and substituting a section very materially 



REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. 97 

reducing the Commission's power. The Commission conducted a cam- 
paign each time against the proposition and is of the opinion that it 
has now tinallv won out. 



RECOMMENDATIONS. 

From the observations which I made on my tour of investigation, 
I respectfully make the following suggestions and recommendations con- 
cerning the regulation and control of public service corporations in this 
state : 

1. Service, Equipment and Facilities. 

The appointment by the Railroad Commission of a sufficient number 
of expert inspectors to inspect the physical condition of all tracks, 
stations, plants and other facilities and equipment of all the public 
service corporations of the state ; also to render reports constantly as to 
the quality and sufficiency of the service rendered to the public. 

2. Stock and Bond Laic. 

The determination by the Railroad Commission of the amount of 
stocks, bonds, notes and other evidences of indebtedness, that public 
service corporations may issue and the conditions of the issue. 

3. Department of Statistics and Accounts. 

The establishment by the Railroad Commission of a department of 
statistics and accounts for the purpose of working out a uniform system 
of accounts for the different public service corporations of the state, 
of analyzing and digesting their annual reports, and furnishing to the 
Commission financial and other statistical data whenever needed. 

4. Public Utilities. 

Adequate control by the Railroad Commission, under the constitution 
as recently amended, of rates, service, equipment, stocks and bonds, and 
accounts of gas, electric, water, power, telephone, telegraph and street 
railway companies, and other public utilities, including the power to 
compel physical connections between telephone companies. 

5. Property Valuation. 

The extension of the power of the Railroad Commission in the matter 
of ascertaining the value of the property engaged in the public service 
from railroads to all other public service corporations subject to its 
jurisdiction. 

6. Public Safety. 

The adoption of adequate means to secure public safety, particularly 
with reference to grade crossings between railroads and highways, or 
two or more railroads. 



98 BEPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. 

7. Interstate Commerce Complaints. 

The protection of the people of California in the matter of interstate 
commerce rates, where any considerable portion of the shippers of the 
state are affected. The Eailroad Commission should appear in such 
cases before the Interstate Commerce Commission. 

8. Court Proceedings. 

The modification of existing statutes so as more adequately to protect 
the Eailroad Commission from the great delays incident to court pro- 
ceedings in many other jurisdictions and for the protection of the public 
in the interim. 

9. Accidents. 

The establishment of a system for immediate notice to the Railroad 
Commission of accidents and for examination into the same by the 
Commission's inspectors and recommendations by them as to means of 
prevention. 

10. Co-operation. 

Between the state Railroad Commission and the Interstate Commerce 
Commission and constant correspondence with other state commissions. 
Also the formation of a Pacific Coast Railroad Commissioners' Associa- 
tion, to consist of the commissions of Oregon, Washington, Nevada and 
California, for the purpose of frequent consultation and concerted 
action on problems of mutual interest. 

Respectfully submitted. 

MAX THELEN, 
Attorney for Railroad Commission 
of State of California. 
Dated, San Francisco, Cal., 
October, 1911. 



LB My 72 



